It’s not entirely a repeat of the North South divide, as businesses in Greater London exhibit a more negative trend to their Southern neighbours.

Businesses in the North have suffered a greater degree of deterioration in trading conditions during the second quarter of 2011 than any other region in the UK, the Bibby Financial Services Business Factors Index reveals.

The Index, which tracks the quarterly performance of business turnover among the company's 4,000-strong UK client base, shows nearly half of small and medium-sized businesses in the North West claim conditions are ‘very’ or ‘incredibly’ tough, compared with just 11 per cent of businesses in the East Midlands, 14 per cent in the South West and 18 per cent in the South East.

Edward Rimmer, UK chief executive at Bibby Financial Services, comments: "The country can effectively split into two equal parts, with one half enjoying positive trading conditions with, business doing better than a year ago and confidence on the up. The other half of the country paints a bleaker picture, with firms finding things incredibly tough and experiencing such difficult trading conditions.

However, it’s not entirely a repeat of the North South divide of old, as firms in Greater London exhibit a more negative trend to their Southern neighbours, with 36 per cent of firms saying business conditions are tough.

Pessimism about recovery

In general terms, pessimism about recovery is widespread in the North, with 43 per cent of firms believing the UK economy will take at least three years to return to pre-recession levels, compared with 30 per cent of businesses in the South.

A major cause of the decline in trading conditions and business confidence in the North is down to the significant effects of public sector cuts, states the report.

The North of England traditionally has among the highest concentrations of public sector workers and, according to the Centre for Economics and Business Research (CEBR), the unemployment rate in those areas will exceed 10 per cent due to cuts to public sector jobs. It is predicted this will have a knock-on effect on the local economy deflating confidence, reducing consumer spend and squeezing business revenues.

Call for Government help

One third of small and medium-sized firms are calling on the Government to do more to stimulate real economic recovery with 17 per cent calling for the Government to increase public spending, eight per cent seeking more Government intervention and a further eight per cent urging the Government to focus on policies to reduce the nation’s deficit.

Further proof of a discernible North-South divide is demonstrated with a third (33 per cent) of firms in the North West urgently calling on the Government to scrap its cost cutting exercise and increase public spending to stimulate confidence compared with just 10 per cent of businesses in the South East.

"With no end in sight to the planned cuts in government expenditure, increased tax, fuel and the potential for a rise in inflation placing additional pressure on UK firms– not to mention the adverse impact on cash flow – many businesses are still in for a bumpy ride," Rimmer concludes.