Business confidence soars to highest level since 2005

12 July 2021

  • BDO Optimism Index reaches its highest level since 2005 as businesses look ahead to further lifting of restrictions from July 19th
  • BDO Employment Index reaches 6 month high as businesses hire staff ahead of a full reopening
  • Rising inflation is a growing concern as the Index edges towards a four-year high driven by supply chain disruption and increased demand for goods and services

Business confidence jumped in June to its highest point since 2005, as businesses look ahead to the lifting of lockdown restrictions later this month, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

The BDO Optimism Index moved 2.74 points from 109.71 in May to 112.45 in June, marking the fifth consecutive month of growth and its highest point since records began in 2005. The index now stands well above the average level of 100.

The rise was driven by the Manufacturing Optimism Index, which rose from 102.98 to 113.22 in June. This reflects an improved global economic outlook, as the effects of the vaccine rollout begin to be felt by economies across the globe.

The rise in the Services Optimism Index was more muted this month, increasing by 1.79 points to 112.35. Given the index includes restaurants, cinemas, and the wider hospitality industry, the response reflects that little has changed for these businesses over the past month in terms of lockdown restrictions.

The BDO Employment Index also increased for the second consecutive month in June, reaching a six-month high of 108.01. This compares to a reading of 107.22 in May. As with the BDO Optimism Index, the increase was largely driven by the gradual reopening over the last few months and the anticipation of further lifting of restrictions.

Despite this optimism, the BDO Inflation Index reached a four-year high of 103.83 in June, up from 102.51 in May. Disruptions to global supply chains caused by factors such as Brexit and the blocking of the Suez Canal, combined with increased demand from households looking to spend savings accumulated during lockdown and higher wages due to labour shortages, have driven prices higher.

Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “Businesses are clearly looking forward to the lifting of restrictions on the 19th July. After a grueling year of unpredictable change, the ending of restrictions is timely, although rising COVID-19 cases still leave an element of uncertainty. The Summer spending surge that could follow will provide a huge boost to the economy, and businesses will be hopeful that the tide is turning over the long term. 

“While businesses are feeling optimistic, rising inflation may be a sting in the tail. The hope is that factors pushing up inflation – shortages caused by supply chain disruption and increased demand caused by the lifting of lockdown restrictions - are short term. However, businesses should keep a close eye on this in case it becomes a longer-term prognosis.”

- 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.
 

 

June 2021 (Figures for this report)

May 2021

 

April 2021

 

June 2020

BDO Output Index

123.17

141.83

145.94

66.50

BDO Optimism Index

112.45

109.71

99.85

79.59

BDO Inflation Index

103.83

102.51

101.28

88.06

BDO Employment Index

108.01

107.22

107.14

109.61


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 18 offices across the UK, employing 6,000 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 91,000 people working out of 1,658 offices worldwide. It has revenues of $10.3bn. 

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.