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UK businesses experience strong start to 2018

12 February 2018

UK businesses experience strong start to 2018

  • Improving services sector drives increased UK GDP growth
  • Firms’ hiring intentions suggest record employment levels set to continue 

UK businesses are experiencing strong order books, driving an expected increase in UK GDP growth in early 2018, according to the latest Business Trends Report by accountants and business advisors BDO LLP.

BDO’s Output Index, which tracks current order books and is an indicator of GDP growth over the next three months, increased to 99.63 from 98.45 and is now just below the 100 level. This suggests that the UK can expect GDP growth of around its long term trend of 2% in the early part of 2018. This is the first time that the Index has increased since July 2017 and indicates that British businesses have had a strong start to the year, despite mounting uncertainty about Brexit.  

The rise in the index has primarily been driven by the services sector, which accounts for the majority of UK GDP. The services sub-index climbed to 99.50 in January from 98.21 the previous month. The sector’s improving performance can be linked to the pickup in the global economy and better than expected consumer spending in the UK.

BDO’s Manufacturing Output sub-index has also increased to 100.67 from 100.33, climbing further above the long-term trend. UK manufacturing continues to benefit from increasing overseas demand, partly due to the cheaper pound.

Record high employment levels look set to continue early in the first half of 2018. BDO’s Employment Index, which indicated firms’ hiring intentions, recovered from a temporary fall in recent months, rising to 111.55 from 111.26, and remains well above the long-term trend.

However, while output and employment are up, further increases in prices could also be on the horizon for UK consumers. BDO’s Inflation Index increased to 101.15 from 99.85 and now sits above the long-term trend. The increase has been driven by rising input costs for businesses which will likely be passed on to consumers later this year.

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

“British businesses have made a strong start to 2018 despite the ongoing uncertainty about our nation’s future outside of the EU. However, if the government continues to stall on providing a clear Brexit strategy for businesses, the performance of UK firms will suffer.

“We need the government to align quickly and communicate its Brexit plan. It is crucial so that UK businesses can make informed investments to best prepare for the future.”

To download BDO’s New Economy report and find out more visit www.neweconomy.bdo.co.uk

- 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.

 

January 2018

(figures for this report)

December

2017

November

2017

January 2017

(equivalent report last year)

BDO Output Index

99.63

98.45

98.99

100.87

BDO Optimism Index

102.09

102.15

102.05

100.23

BDO Inflation Index

101.15

99.85

100.25

98.9

BDO Employment Index

111.55

111.26

111.06

107.67

Notes to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high growth businesses that fuel the economy.

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.

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 has revenues of £405m and is the UK member firm of the BDO International network.

BDO International

The BDO International network provides business advisory services in 158 countries, with 68,000 people working out of 1,400 offices worldwide. It has revenues of $7.6bn.

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

Alexander Dickie at Teneo Blue Rubicon on behalf of BDO LLP
Mob: 07876 287318
Tel:  0207 260 2719
Email: [email protected]