BDO’s Employment Index has hit a 19-month high, indicating a resurgence in private sector hiring intentions, according to the latest Business Trends report by accountants and business advisers BDO LLP.
The BDO Employment Index, which measures UK businesses’ hiring intentions over the next two quarters, reached 96.0 in March, the highest since August 2011. This is the third consecutive month that the index has been at or above the crucial 95.0 level that indicates employment growth. This suggests that UK businesses will help to offset the effects of expected public sector job cuts, providing a timely boost for the nation’s ailing economy.
Despite this, UK businesses still do not anticipate economic growth in the next two quarters. BDO’s Output and Optimism indices - which predict short-run turnover expectations and business performance a quarter and two quarters ahead - sit at just 93.0 and 92.2 respectively. These figures remain well below 95.0 (the level that indicates growth) which suggests economic conditions will remain tough until at least mid-2013.
More encouragingly, service sector confidence moved up substantially this month, with optimism increasing to 93.2 from 89.6 in February and output rising to 93.2 from 91.5 last month. While these March indices are still below the 95.0 mark, these increases are a welcome sign as the services sector makes up roughly three quarters of the UK economy. Optimism in the sector is now at its highest point since October 2012.
By contrast, the manufacturing sector’s data continued to decline. Optimism for manufacturers plummeted from a reading of 94.5 in February to 88.2 this month, while the BDO Output Index also fell, from a reading of 94.1 to 92.4. The depreciating value of Sterling coupled with weak demand from domestic consumers and struggling Eurozone import partners is likely to be weighing on manufacturers’ confidence.
Peter Hemington, Partner, BDO LLP, commented: “It is encouraging to see improvement in UK businesses’ hiring intentions, particularly in light of the imminent public sector payroll cuts which will add pressure to the unemployment rate.
“However, the plunging confidence of manufacturers is a particular cause for concern. A fundamental part of the Coalition Government’s “rebalancing” strategy is the encouragement of UK manufacturing. So, it was disappointing to see little action taken in last month’s budget to help this beleaguered sector. In particular, a time limited increase in capital allowances would have been a good step to take in order to encourage the manufacturing industry to invest and grow.”
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The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the centre for economics and business research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.
The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Markit/CIPS Manufacturing and Services PMI data.
Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.
The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles.
Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.
The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.
Notes to editors
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