A stronger pound in September and falling input prices have driven the BDO Inflation Index to its lowest level since the EU referendum in June 2016, according to a new report from accountants and business advisors BDO LLP.
BDO’s Inflation Index, which combines input inflation and consumer price inflation data, fell by 1.39 points to 95.36 points in September - the lowest level since the Brexit referendum more than three years ago. It now hovers on the brink of the deflationary threshold (95.0), signalling a potential economic downturn.
A key driver of the fall is the reduction in the rate of consumer price growth as shops seek to win back customers who are tightening their purse strings. At 91.86, the Input Inflation Index fell to a particularly low level in September, with producer prices continuing to decline year-on-year.
Peter Hemington, Partner at BDO LLP, said: “A lower rate of input inflation brings some relief for manufacturing businesses, but can also ring alarm bells that the economy is heading towards a downturn.
“Unfortunately, these businesses will still have to contend with declining economic confidence which has been badly affected by the latest phase of the UK’s extended withdrawal from the EU. While any kind of Brexit resolution will restore some confidence, this doesn’t necessarily hold true if this resolution is through a no deal.”
Elsewhere in the report, the economic outlook was mixed with an increasing disparity between the manufacturing and services sectors. The BDO Manufacturing Output Index fell for a twelfth successive month, hitting 88.00 in September - the lowest point since October 2016. However, overall output was propped up by the services sector, which saw the index rise by 1.02 points to 98.63 in September.
The BDO Optimism Index remained flat at 96.26 points, with a small rise in services sector optimism negated by a weakened outlook for the manufacturing sector. However, at 102.16 points, the Manufacturing Optimism Index remains comfortably more resilient than the Services Optimism Index, which now sits at 95.52.
To download BDO’s Business Trends 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. 100 = average value. Above 95 = positive.
(figures for this report)
(equivalent report last year)
|BDO Output Index
|BDO Optimism Index
|BDO Inflation Index
|BDO Employment Index
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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 Headland on behalf of BDO LLP
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