The latest Quarterly Economic Survey (QES) released today (7 July 2014) by Northern Ireland Chamber of Commerce and Industry (NI Chamber), in partnership with business advisors BDO, reveals that 73 per cent of businesses have experienced rising costs when complying with business regulation over the last 5 years.

The survey also revealed that a majority of firms (57%) believe the quality of guidance around regulation to be good but 52 per cent of firms expressed concerns on how regulations were developed, stating that the government does not engage well with them before any new regulation is introduced.

In contrast, 45 per cent of firms stated that it is not regulations that are the problem but the way they are enforced by regulators. Meanwhile 40 per cent of respondents expressed a concern that the requirements of local businesses are not adequately represented at EU level. Respondents were asked which areas of regulation their company finds the most burdensome. Health and safety (41%), employment (35%) and direct taxes (33%) were the area’s most commonly cited.

Additional findings surrounding business regulation revealed that 1 in 4 businesses (27%) have used nibusinessinfo.co.uk in the last 12 months with 12 per cent of members using it specifically for advice on business regulation.

The findings, which relate to Quarter 2 of 2014, also illustrate how Northern Ireland’s economic recovery is continuing, albeit slowly, with Northern Ireland remaining a largely lagging region in the UK’s recovery. A number of balances have weakened this quarter with manufacturing export sales and orders weakening considerably with the domestic sales and orders balances for the services sector also decreasing. Specific findings relating to Quarter 2 of 2014 include:

Manufacturing
The survey revealed that there has been an improvement in Northern Ireland’s relative position regarding domestic sales and orders for the manufacturing sector in Q2 2014, however all manufacturing balances for Northern Ireland are lower than the UK average. Business confidence levels remain largely unchanged from Q1 2014, with Northern Ireland ranking third from bottom of UK regions in this regard. The cashflow balance for the manufacturing sector has improved considerably (from zero last quarter to +13). Business costs are less of an issue this quarter (particularly raw material costs), which possibly reflects lower inflation and cheaper imports given sterling’s 6-year high against the dollar and 18-month high against the Euro.

Services
The services sector reported mixed messages, with Northern Ireland amongst the bottom 4 of the 12 UK regions across the key balances. Domestic sales and orders balances have fallen this quarter. Fewer firms in the services sector also seem to be experiencing recruitment difficulties this quarter (51% experiencing recruitment difficulties this quarter versus 63% in Q1 of 2014). Business confidence around profitability has fallen by 16 points which is some cause for concern.

Recruitment intentions
There are positive signs regarding recruitment intentions for both the manufacturing and services sectors. Recruitment intentions within manufacturing particularly have strengthened this quarter (an increase from 57 points to 80 points) and that includes full-time and permanent staff. This places Northern Ireland ahead of the UK average and is consistent with official statistics which have shown an increase in employee jobs in recent months. However two-thirds of businesses are still experiencing difficulties finding suitable candidates for the job.

Exports
The survey reports that manufacturing export balances this quarter have weakened considerably placing Northern Ireland second lowest of the UK regions. Businesses cited the strength of sterling as an increasing concern.

Wider business concerns
Competition remains the most important concern to businesses by a considerable margin and the competitive environment appears to becoming even more challenging. The issue of exchange rates is a threat to international competitiveness, especially to manufacturers, with 36 per cent of businesses within that sector citing this as a major concern. Interest rates are the third biggest concern for businesses, who claim that the uncertainty around the timing of any increase in the Bank of England’s base rate is not helpful.

Commenting on the survey’s findings, Ann McGregor, Chief Executive of NI Chamber, said:
“Northern Ireland still appears to be zigzagging towards a full recovery but there are some real positives this quarter. Recruitment intentions in both manufacturing and services have strengthened which shows business confidence is improving. Cost pressures are easing further and the cash flow position of more businesses is improving.

“NI Chamber is extremely disappointed by the noticeable fall in the export balances. The concern over currency volatility won’t come as much of a surprise with businesses fearing that sudden currency shifts could mean the difference between trading at a profit and a loss. Businesses are certainly right to be cautious but managers should not allow currency concerns to inhibit growth abroad. Hedging against currency fluctuations is a fairly straightforward operation and should form part of any company’s export strategy.

“The cost of complying with business regulation is still increasing for businesses, in spite of efforts by Westminster to reduce them. NI Chamber is currently involved in the Northern Ireland Executive’s review of business red tape in Northern Ireland with the aim of looking for ways to reduce the regulatory burden on local businesses. We look forward to engaging with government and our members throughout this process.”

Maybeth Shaw, Partner at BDO, said:
“The survey matches what BDO are hearing on the ground from our clients. The cost of compliance and, in particular, the cost of time related to compliance is a continual issue for many of our clients. Of more pressing urgency however, is the issue of the interest rate and its potential rise. This is an area of concern which many of our clients feel is a real barrier to their future growth plans.

“The recent comments from the Bank of England highlighting the likelihood that a rate rise is imminent appear to have brought sharp focus to the matter. The last few years have been difficult for Northern Ireland’s businesses; however the one core fundamental they could rely upon was a low and stable rate of interest. Certainty around this has now gone. This uncertainty may benefit some areas of the UK economy that are starting to overheat. It could, however, have a significant detrimental effect on the Northern Ireland economy which has been slower to progress post-recession.”