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Business confidence increases simultaneously across manufacturing and services sectors for first time since 2018

10 February 2020

  • Cautious optimism emerges across the manufacturing and services sectors following the UK’s departure from the EU 
  • Rising confidence is overshadowed by output falling to its lowest level since July 2018

Business confidence rose simultaneously across the manufacturing and services sectors for the first time in 18 months, according to January’s Business Trends report published by accountancy and business advisory firm BDO.

BDO’s Optimism Index, which provides the most comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, increased for a third consecutive month in January and now stands at 95.84, slightly above the 95 mark which indicates growth.

The Manufacturing Optimism Index edged up 0.05 points as a sustained spell of output decline was broken. Manufacturing output signalled improvement for the first time in 15 months, rising 0.47 points. Despite this small advancement, at 86.78 the Manufacturing Output Index remains languishing well below the point of contraction (95).

An increase in confidence was also witnessed by the services sector, which gained 0.13 points as businesses across the country enjoyed more certainty following Brexit.

Despite optimism cautiously improving across both sectors, it remains low by historical standards. This is mirrored by BDO’s Output Index, which fell to its lowest level since July 2018, dropping 0.59 points to 95.8 as sluggish growth and residual political uncertainty weighed on output. Most notably, the marginal improvement seen in manufacturing output was offset by a 0.73 decline in services sector output, which accounts for approximately 80 per cent of the UK economy. 

Elsewhere in this month’s Business Trends report, the Employment Index rose for a third consecutive month to stand at 112.46, up 0.21 points from December, as increased optimism has spurred a renewed appetite for hiring new staff.

Commenting on the results, Peter Hemington, Partner at BDO LLP, said: “The fact that we are seeing increasing optimism across both the services and manufacturing industry is a healthy sign. It remains to be seen whether businesses can shake off their Brexit blues, but if this month’s Employment Index is anything to go by, the initial signs are positive.” 

To download BDO’s Business Trends 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. 100 = average value. Above 95 = positive.

 

January 2020 (figures for this report)

December

2019

November

2019

January

2019

BDO Output Index

95.88

96.47

96.04

97.24

BDO Optimism Index

95.84

95.72

95.71

99.98

BDO Inflation Index

96.07

95.27

94.84

98.23

BDO Employment Index

112.46

112.25

112.22

115.11


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 locations across the UK, employing nearly 5,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 167 countries, with 88,000 people working out of 1,800 offices worldwide. It has revenues of $9.6bn.  

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

Tom Grant
at Headland on behalf of BDO LLP
Mob: +44 (0)78 3322 3170
Tel: +44 (0)20 3805 4841
Email: [email protected]