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UK business confidence returns

11 September 2016

Post Brexit shock was sharp but short

UK businesses are starting to regain their confidence, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

The latest results indicate that businesses are now finding that the post Brexit slump has not been as severe as expected, after confidence fell to a three-year low last month.

Business optimism, which predicts growth six months ahead, is up to 98.7 from 97.9, well above the 95.0 level which would indicate the start of recessionary conditions. It is climbing back toward the 100.0 value, which signals the UK's long term trend growth rate of just over 2%. 

Business output – which reflects companies’ current experience of orders – has fallen again to 97.4 from 98.2. The Output Index is a good indicator for where GDP will be for the three months ahead.

Taken together, these results suggest that the UK experienced a short, sharp fall in business activity post referendum, but that businesses are confident that this will quickly reverse.

Further good news is that jobs continue to be created. BDO’s Employment Index – which indicates firms’ intentions to hire – remains at 100.9, above the long term trend.

Following the fall in the value of sterling, the Inflation Index has now rallied and sits at 101.4 following a prolonged period of flatness, suggesting that businesses expect inflation to rise from its current lows over the coming months.

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

 “After the immediate Brexit scare, businesses are becoming more confident as they start to find that, for most of us, it’s back to business as usual. But ongoing uncertainty and the likely longer-term damage if we exit the single market, are concerns which continue to justify government support for growth.

“The government must prioritise taking advantage of cheap borrowing costs to invest in infrastructure and protect the growth of our economy as we move closer to exit negotiations.”

- 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.

 

August 2016

(figures for this report)

July

2016

June

2016

August 2015

(equivalent report last year)

BDO Optimism Index

98.7

97.9

98.9

101.9

BDO Output Index

97.4

98.2

99.0

104.5

BDO Inflation Index

101.4

99.9

97.9

95.9

BDO Employment Index

100.9

100.9

101.4

107.9

Notes 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.  

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.

Contacts

Alex Dickie at Blue Rubicon on behalf of BDO LLP

Tel: 0207 260 2700
Mobile: 07876 287318
Email: [email protected]