Business optimism sees sharpest jump of the recovery so far, but challenges lie ahead
- Sharp rise in optimism throughout August after businesses boosted by Government support
- End of Government support and fears of a second wave could test future optimism
- Employment Index drops to a near four year low
Business optimism across the UK jumped sharply in August, after many businesses enjoyed a better summer than anticipated. However, with much of this optimism contingent on Government support and lockdown restrictions lifting, fears of the impact of a second wave, Brexit uncertainty and the end of the furlough support scheme, the next few months may present significant challenges for businesses.
BDO’s Optimism Index, which provides the most comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, rose by 5.54 points across August. This represents the sharpest monthly rise since the onset of the coronavirus pandemic. The index now sits at 86.44 but remains below the long term average level of 100.
This jump was largely driven by an increase in BDO’s Services Optimism Index, which rose by 6.03 points throughout August. The jump in retail sales volumes – facilitated by the easing of lockdown restrictions – has boosted sentiment in this sector. In addition, the Government’s Eat Out to Help Out scheme for the hospitality sector drove the index higher still.
By contrast, the increase in BDO’s Manufacturing Optimism Index was a lot more muted with a rise of just 1.59 points in August. This could reflect wariness of a second wave, uncertainties surrounding post-Brexit trading arrangements, exposure to international markets and concerns around the resilience of global supply chains.
Elsewhere in the report, the BDO Employment Index fell for the sixth consecutive month, hitting a near four year low of 106.76. The slow and steady decline of the Employment Index suggests that Government support has been broadly successful in retaining jobs so far. With the furlough scheme due to end in October, November and December’s figures will reflect the long-term success of this.
Download August 2020 report
The chart below shows a sample of recent data from the Business Trends report. Any scores below 95 represent a contraction or a negative growth rate.
What is Business Trends?
The Business Trends report is one of the key monthly indicators of the performance of the UK economy, and provides an accurate and up-to-date picture of the environment that businesses are facing.
Business Trends covers more than 4,000 respondents from companies employing approximately five million employees across the UK. The report includes separate indices for services and manufacturing sector optimism and output, as well as indicators for UK inflation and employment.
Since 1992, the BDO Business Trends report has provided the most representative monthly measure of business output and optimism available. The results can be used as indicators of turning points in the economy as well as, because of their method of construction, leading indicators of the rates of inflation and growth.
See a sample Business Trends report
How is Business Trends prepared?
Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research (CEBR), a leading independent economics consultancy.
Survey's contributing to Business Trends
Four indices covering output, optimism, inflation and employment, are calculated by taking a weighted average of the results of the UK's main business surveys, including:
- CBI Industrial Trends Survey
- CBI Monthly Trends Enquiry
- Bank of England Agents' summary of business conditions
- Markit/CIPS Manufacturing and Services PMI data
Taken together, these surveys cover more than 4,000 different respondents from companies employing approximately five million people in the UK. Collectively, they comprise the most representative measure of economic indicators and business confidence available. The respondents cover a range of different industries and business functions to deliver a comprehensive picture of the general economic outlook.