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Immediate decline in business confidence less than expected

08 August 2016

But optimism continues to fall post Brexit vote.

Business confidence continues to fall following the UK’s vote for Brexit, and is now at its lowest in over three years, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

Business output, reflecting companies’ experience of orders for the three months ahead, now sits slightly lower on the previous month at 98.2, down from 99.0.  At the same time business optimism, which predicts growth six months ahead, has fallen from 98.9 to 97.9.  These lie approximately mid-way between the 95.0 mark on the indices – below which lies possible recessionary conditions - and 100.0 – which correlates to the UK’s trend growth rate of just over 2%.  So, while there is a definite and continued decline in the confidence of UK business people, the latest drops are not yet as dramatic as may have been predicted.  This suggests that the initial impact of the Brexit vote has been less severe than expected.

The picture is much gloomier for UK manufacturing as the sector’s optimism sub-index dropped to a four-year low, down to 81.0 – well below the 95 mark which indicates contraction.

The falling value of sterling signals better exporting conditions and offers some hope for UK manufacturers, but rising inflation will also affect the sector by pushing up costs. BDO’s inflation index rose from 97.9 to 99.9 this month and this is set to rise further in the coming months following the drop in interest rates.

Commenting on the findings, Peter Hemington, Partner, BDO LLP, said: 

 “Brexit has compounded the continuing slowdown of the UK economy but there is opportunity as well as challenge ahead for UK businesses.

“The Bank of England’s decision to lower interest rates is a step in the right direction. We now need a concerted effort from government to lay the foundations for future growth. That means taking advantage of cheap borrowing costs to invest in UK infrastructure, encouraging prosperity across the regions and improving productivity.”

BDO’s three point Brexit plan

In order to reassure UK businesses, BDO proposes that government acts quickly to enact a three point plan to stabilise the economy and position us for growth. The plan includes:

  • Encouraging prosperity in the manufacturing regions – take advantage of cheap borrowing costs to invest in business-friendly infrastructure in regions traditionally strong in manufacturing.  Government plans to rebalance the UK economy must be greatly increased
  • Solving the productivity puzzle – the growing workforce is not increasing productivity, real action needs to be taken to address the productivity puzzle by incentivising investment in training and skills 
  • Injecting more cash into the economy – use quantitative easing to lower borrowing costs further and encourage businesses to invest


- Ends –

For more information and to download the Business Trends report, click here.

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.


July 2016 (figures for this report)

June 2016 May 2016 July 2015 (equivalent report last year)
BDO Optimism Index 97.9 98.9 99.4 103.3
BDO Imput Index


99.0 99.7 104.4
BDO Inflation Index 99.9 97.7 97.5 95.2
BDO Employment Index 100.9 101.4 101.9



Note to editors

Accountancy and business advisory firm BDO LLP has a clear ambition to be known in the market for exceptional service delivered by empowered people. The Mid-Market Monitor shows that BDO is the market leader for client satisfaction for the fourth year running – outperforming all its major competitors.

BDO’s heartland is the mid-market. The UK mid-market accounts for less than 1% of all firms but delivers a third of UK revenue and one in four jobs. In the last five years, medium-sized businesses have grown turnover by 55% and profits by 110%. BDO’s New Economy research ( calls for the government to put the UK mid-market at the heart of its plans to rebalance the economy and help this already successful sector expand further.  


BDO LLP operates in 18 offices across the UK, employing 3,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO International network with revenues approaching £400m.

BDO International

The BDO International network provides business advisory services in 154 countries, with 64,500 people working out of 1,400 offices worldwide. It has revenues of $7.3bn.  

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.


Alex Dickie at Blue Rubicon on behalf of BDO LLP

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