Manufacturing optimism in the UK has plummeted to its lowest level since January 2013, the month when David Cameron committed to call an in-out referendum on Britain’s EU membership, according to the latest Business Trends report from accountants and business advisors BDO LLP.
BDO’s Manufacturing Optimism Index, which shows how businesses expect their order books to develop in the next three to six months, fell to 98.26 in May from 101.09 in April.
In further gloomy news for the industry, the report shows that output growth is at its lowest point since February 2017 and close to contraction. BDO’s Manufacturing Output Index, which measures output growth in the sector, registered a decline of 1.36 points to 95.91 – just 0.91 points off negative territory. This exposes the extent to which stockpiling activity artificially inflated growth in previous months.
By contrast, optimism in the services sector surged by 4.28 points to 99.34 in May. This marks the largest monthly increase since May 2009, when companies started to regain confidence after the global financial crisis. The rise suggests that the extension of Article 50 has reassured some businesses that a cliff-edge Brexit may be avoided.
While the headline figures for the UK labour market remain strong, BDO’s Employment Index, which tracks firms hiring intentions, slipped to its lowest level since June 2018. Reflecting a fall in the number of job vacancies as well as wage growth easing, the Index registered a 1.01 point decline between April and May, bringing it to 113.05. This is still a surprisingly strong figure given the current uncertainty and reflects the UK’s continuing ability to create jobs.
Commenting on the BDO Business Trends report’s findings, Peter Hemington, Partner at BDO LLP, said:
“This month’s data is mixed, with sentiment in the services sector making a strong rebound after the granting of the UK’s Brexit extension until October. However, the manufacturing industry is set to be be particularly badly affected over the next few months as it becomes clear that Brexit contingency planning artificially inflated growth at the start of 2019.
“This malaise will be exacerbated by increasing concerns that a no deal scenario has been thrown back into play, an outcome which UK businesses are warning could have calamitous consequences.”
To download BDO’s New Economy report and find out more visit www.neweconomy.bdo.co.uk
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.
(figures for this report)
(equivalent report last year)
|BDO Optimism Index
|BDO Output Index
|BDO Inflation Index
|BDO Employment Index
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The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.
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.
at Teneo on behalf of BDO LLP
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