This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy policy for more information on the cookies we use and how to delete or block them.

Business Trends: UK economy set for robust growth in first half of 2014

05 December 2013

Business confidence improving across the board

UK business confidence has increased for the tenth consecutive month, and suggests the UK's economic recovery will gather pace in the first half of 2014, according to the latest Business Trends report by accountants and business advisers BDO LLP.

BDO's Optimism Index, which predicts business performance two quarters ahead, increased from 101.7 in October to a 43-month high of 103.1 in November, taking it comfortably above the 100.0 mark that indicates the UK economy's long-run average growth rate.

Increased business confidence is taking hold across the economy, with optimism in the services and manufacturing sectors both above the crucial 100.0 mark for the first time since April 2010. Optimism in the services sector, which accounts for just over three-quarters of the UK economy, rose to 100.4 in November, up from 99.9 the previous month. Optimism among manufacturers, driven by rapid growth in new business orders, rose from 109.6 in October to 115.3 this month – the sub-index's second highest reading in Business Trends' 21-year history.

Business conditions also continued to improve in November, and provide further evidence that the UK economy's recovery is broad-based. BDO's Output Index, which predicts short-run turnover expectations, went up from 100.7 to 101.8 in November, with both the manufacturing and services sub-indices increasing strongly this month. The strengthening Output Index points to a strong end to 2013 for the UK economy.

In further welcome news, Inflationary pressures on UK businesses look to be receding. The BDO Inflation Index was down from 100.5 in October to 99.7 this month - below the all-important 100.0 mark that indicates inflation's long-term trend. Holding down cost inflation for labour-intensive services firms, total wages were only 0.7% higher during July-September 2013 than one year before. Helping manufacturers control costs, the oil price fell by 2.3% over the year to November 2013 in sterling terms. Similarly, total manufacturing input prices decreased by 0.3%, easing manufacturing cost pressures.

Peter Hemington, Partner, BDO LLP, commented: "This is a strong and broad-based recovery.  I think we can finally say that the key economic battleground has shifted from austerity to the new debate about how the UK government can help UK businesses achieve sustained growth in the context of a dynamic, internationally competitive economy. 

"The UK clearly has some substantial long-term problems in terms of an underperforming education system and a dysfunctional planning regime.  Only time will tell whether the Coalition Government's radical plans for educational reform will work, but at least there is plenty of energy behind implementing these.  Planning seems to have been filed in the "too difficult" box by successive governments, so real change is unlikely anytime soon.

"Just as importantly, there still remains a very strong case that we need to spend more on infrastructure, particularly on updating our tired, expensive and increasingly life expired energy industry.  If the government can at least partly crack these issues, the UK has a chance of getting back to good levels of sustained long-term growth."

Overview of the BDO indices:

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison.

 

Nov 2013

(figures for this month's report)

October 2013

September 2013

Nov. 2012

(equivalent report last year)

BDO Optimism Index

103.1

101.7

100.7

91.4

BDO Output Index

101.8

100.7

99.5

93.4

BDO Inflation Index

99.7

100.5

100.6

99.2

BDO Employment Index

98.3

98.1

97.5

93.1

 

The full BDO Business Trends report is available here.

- Ends -

Notes to editors

Accountancy and business advisory firm, BDO LLP, is the UK member firm of the BDO International network. In April 2013, BDO LLP merged with PKF (UK) LLP to form a new force in the mid-market, employing 3,500 people across the UK.

BDO LLP has a clear ambition to be the firm known in the market for exceptional service delivered by empowered people. The 2013 Mid Market Monitor analysis shows that BDO is the market leader for client satisfaction for the second year running – outperforming all its major competitors and the only organisation to see an improvement over the past four years.

BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU.

BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name for the BDO International network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, and BDO (Isle of Man) LLC are associate firms and licensed to operate within the international BDO network of independent member firms.

The combined fee income of all the BDO Member Firms, including the members of their exclusive alliances, was $6.45 billion in 2013. The global network provides business advisory services in 144 countries, with more than 56,000 people working out of 1,264 offices worldwide.

Methodological notes

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.