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Plan of action needed to kick-start UK’s stuttering economy

11 July 2016

  • BDO calls for swift action to reassure business
  • Business optimism and business output at three year low
  • Business hiring intentions at two year low

The UK economy was already showing signs of slowing ahead of the European referendum, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

This month’s report reveals that the rising uncertainty ahead of Brexit dragged business output and business optimism to three-year lows for the second month running.

Business output - which reflects companies’ experience of orders for the three months ahead – now sits at 99.0, whereas business optimism – which predicts growth six months ahead – fell to 98.9.  UK Manufacturing continues to have the gloomiest outlook, with its optimism sub-index slumping to 83.8.

Uncertainty surrounding Brexit also contributed to the continuing slowing rate of job creation. BDO’s Employment Index – which indicates firms’ intentions to hire – has now dropped to 101.4, and is currently at a two year low.

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

 “The uncertainty prompted by Brexit has disrupted investment in the UK economy, but the signs of a slowdown were already showing ahead of the decision.

“In all likelihood, whatever arrangements the UK eventually arrives at with the EU won’t look very different from what we have at the moment. So businesses cannot afford to get caught up in the hysteria. They need to hold their nerve and continue to invest in the UK.

“We are at a crucial moment where we must be sensible in protecting the UK economy. We need a plan of action now that gives businesses the added confidence to progress with investment plans.”

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 –

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.

 

 

June 2016

(figures for this report)    

May

2016    

April

2016    

June 2015

(equivalent report last year)

BDO Optimism Index

98.9

99.4

99.5

103.9

BDO Output Index

99.0

99.7

100.6

104.1

BDO Inflation Index

97.9

97.5

97.1

94.6

BDO Employment Index    

101.4

101.9

102.2

109.1

 

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 (www.bdo.co.uk/neweconomy) 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

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. 

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

Methodological notes

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.

Contacts

Alex Dickie

at Blue Rubicon on behalf of BDO LLP

Tel: 0207 260 2700

Mobile: 07825 330 990

Email: bdo@bluerubicon.com