This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy statement for more information on the cookies we use and how to delete or block them.

Business optimism sees sharpest jump of the recovery so far, but challenges lie ahead

14 September 2020

  • Sharp rise in optimism throughout August after businesses boosted by Government support
  • End of Government support and fears of a second wave could test future optimism
  • Employment Index drops to a near four year low

Business optimism across the UK jumped sharply in August, after many businesses enjoyed a better summer than anticipated. However, with much of this optimism contingent on Government support and lockdown restrictions lifting, fears of the impact of a second wave, Brexit uncertainty and the end of the furlough support scheme, the next few months may present significant challenges for businesses.

BDO’s Optimism Index, which provides the most comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, rose by 5.54 points across August. This represents the sharpest monthly rise since the onset of the coronavirus pandemic. The index now sits at 86.44 but remains below the long term average level of 100.

This jump was largely driven by an increase in BDO’s Services Optimism Index, which rose by 6.03 points throughout August. The jump in retail sales volumes – facilitated by the easing of lockdown restrictions – has boosted sentiment in this sector. In addition, the Government’s Eat Out to Help Out scheme for the hospitality sector drove the index higher still.

By contrast, the increase in BDO’s Manufacturing Optimism Index was a lot more muted with a rise of just 1.59 points in August. This could reflect wariness of a second wave, uncertainties surrounding post-Brexit trading arrangements, exposure to international markets and concerns around the resilience of global supply chains. 

Elsewhere in the report, the BDO Employment Index fell for the sixth consecutive month, hitting a near four year low of 106.76. The slow and steady decline of the Employment Index suggests that Government support has been broadly successful in retaining jobs so far. With the furlough scheme due to end in October, November and December’s figures will reflect the long-term success of this.

Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “The jump in optimism is good news and reflects the easing of restrictions and the success of Government support for businesses across the UK so far. 

“However, with so many factors at play, this optimism may be built on quicksand. The end of the Eat Out to Help Out and furlough support schemes, coupled with early signs of a second wave of infections, the reintroduction of lockdown restrictions and Brexit uncertainty, will pose significant challenges to businesses over the coming months.

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.

  August 2020
(Figures for this report)
July 2020 June 2020 August 2019
BDO Output Index 76.94 73.2 66.5 96.62
BDO Optimism Index 86.44 80.9 79.59 96.26
BDO Inflation Index 94.06 90.87 88.06 102.23
BDO Employment Index 106.76 107.37 106.24 114.74


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.

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.