Home News BDO Optimism Index: “UK business confidence levels sink to 15-month low”

BDO Optimism Index: “UK business confidence levels sink to 15-month low”

by Brian Sims

Business output in the UK has recovered from July’s six-year low, but optimism has hit its lowest level since May 2017, when business confidence wobbled following the announcement of Prime Minister Theresa May’s snap General Election. That’s according to the latest Business Trends Report compiled by accountant and business advisor BDO LLP.

BDO’s Optimism Index, which shows how businesses expect output to develop in the next three-to-six months, declined by 0.43 points in August to stand at 101.93. Britain’s services sector, which accounts for approximately 80% of UK GDP, is feeling particularly gloomy about the future, with confidence falling to its lowest recorded level since March last year.

This drop in optimism emerges one month after the UK’s services sector contracted for the first time in eight years, when output plummeted to 94.73 in July. While August witnessed a promising rebound, with output rising to 97.17, this remains 3.12 points beneath the output figure for this time last year.

The manufacturing sector also experienced a slight dip in confidence during August, despite an increase in output. BDO’s Manufacturing Index shows that output rose from 100.16 in July to 102.06 in August, remaining comfortably within positive growth territory, but optimism slipped for a second consecutive month.

This broad-based decline in optimism is indicative of the lack of political progress made on key economic issues, most notably the UK’s trading arrangements, as the ongoing Brexit negotiations reach a critical phase. Compounding this, the international economic outlook has also soured, and particularly so in Europe, with anaemic wage growth and weak confidence threatening to undermine demand in Britain’s key export markets.

While the Government has set a target to raise exports to 35%, there will be disquiet that UK export volumes declined by 3.6% in Q2, driven by a drop in exports to non-EU markets.

Commenting on the BDO Business Trends Report’s findings, Peter Hemington (partner at BDO LLP) said: “After more than two years since the UK voted to leave the EU, the lack of progress on what our future trading relationships will look like is now undermining business confidence and testing companies’ resilience. With the services sector accounting for more than 80% of UK GDP, the Government must do more to reassure businesses that it will protect Britain’s 26 million services sector workers as Brexit negotiations take place, particularly considering the UK has the highest share of services exports than any leading economy.”

*To download BDO’s New Economy report and find out more visit www.neweconomy.bdo.co.uk

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