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UK business output declines for first time in 2019

13 May 2019

  • Diminishing stockpiling activity leads to drop in manufacturing output
  • Manufacturing optimism falls to 30-month low
  • Services sector optimism on the brink of negative territory

A new report from accountants and business advisors BDO LLP has found that UK business output growth has declined for the first time this year. BDO’s Output Index, which measures UK business output growth, fell to 98.63 in April from 98.74 in March.

Business confidence also registered another decline in April, slipping by 0.36 points to 95.74 – the lowest level the index has been since 2012.

As the imminent threat of a no-deal Brexit was lifted last month, activity in the manufacturing sector is expected to diminish due to unprecedented levels of stockpiling tailing off. BDO’s Manufacturing Output Index, which tracks output growth in the sector, declined to 97.27 in April. This marks a year-on-year decrease of 8.32 points and compares to its most recent high of 103.26 in September 2018.

In further gloomy news for the manufacturing industry, confidence has hit a 30-month low. BDO’s Manufacturing Optimism Index, which shows how businesses expect output to develop in the next three to six months, declined to 101.09 in April from 103.73 in March. The index has not been this low since November 2016 and reflects concerns by manufacturers that they expect growth to moderate in the coming months.

Optimism in the UK’s services sector fell for a ninth consecutive month after it plummeted by 4.15 points in March. The index shows that optimism dropped to 95.06, just 0.06 points off negative territory. Despite the extension of Article 50 until October, businesses still don’t have the clarity they desperately need on the future long-term relationship the UK will have with the EU.

Commenting on the BDO Business Trends Report’s findings, Peter Hemington, Partner at BDO LLP, said:

“The only certainty businesses have at the moment is that the UK government still doesn’t know exactly how or when the UK will leave the European Union. We are seeing the impact of this confusion with business confidence plummeting.

“An extension of Article 50 alone is insufficient to restore sentiment among businesses, so it was disappointing to hear the Chancellor’s plan to conduct a three-year spending review is now unlikely to go ahead given the political uncertainty. The Chancellor should not wait - a rethink of government spending priorities could provide the shot in the arm that the economy needs.”

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.

  April 2019
(figures for this report)
March 2019 February 2019 April 2018
(equivalent report last year)
BDO Optimism Index 95.74 96.10 99.79 102.49
BDO Output Index 98.63 98.74 98.32 99.97
BDO Inflation Index 100.11 98.17 97.41 97.51
BDO Employment Index 114.06 113.92 113.99 112.29


Note 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 17 offices across the UK, employing 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has underlying revenues of £590m and is the UK member firm of the BDO International network.

BDO’s global network

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. 

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

Paul Wyatt
at Teneo on behalf of BDO LLP
Mob: 07850 656712
Tel: 0207 260 2700
Email: [email protected]