Business confidence boosted as inflationary pressures fall to one-year low

BDO’s Inflation Index falls to its weakest reading for 12 months in March following subsiding input price pressures reflecting falling prices in wholesale energy market
The Optimism Index remains in net positive territory for the second consecutive month, as the Output Index hits a seven-month high
>A more positive outlook for businesses drives a second-consecutive monthly uptick in the Employment Index

BDO’s Inflation Index recorded its lowest reading for 12 months and business optimism remained positive as input price pressures eased, according to the latest Business Trends report from accountancy and business advisory firm, BDO.

Overall, BDO’s Inflation Index declined by 2.19 points to 110.99, its lowest reading since March 2022. This was driven by a notable 5.77-point fall in the input inflation sub-index as supply chain pressures gradually subsided and wholesale energy prices have fallen.

The fall in the headline index was softened by an increase in the consumer inflation sub-index, as a 1.41-point increase saw it rise to a three-month high of 118.53. This was impacted by a steep rise in consumer price inflation in February, particularly for the food and hospitality sectors, with further acceleration expected to have taken place in March.

Despite accelerating price pressures, consumer spending has remained resilient which, combined with slowing input price pressures, have improved the outlook for businesses. While a marginal 0.27-point fall to 97.09 was witnessed in March, the Optimism Index posted a net positive reading for the second consecutive month, remaining firmly in expansionary territory above the 95-point boundary between growth and decline as businesses hope that the worst of the economic downturn is over

March saw the Output Index reach a seven month-high at 99.48, its strongest reading since August 2022 when it stood at 100.25. This suggests the economy grew in March, driven by the services sector which exceeded the 100-point threshold for growth for the second consecutive month to now sit at 100.95.

The manufacturing output sub-index also rose in March, climbing 2.73 points following the 0.59-point decline seen in February. While the sub-index still remains in contractionary territory, it is likely this will continue to improve as input price pressures and supply chain difficulties ease further.

A more positive outlook and increased output gave a boost to the UK labour market in March, as BDO’s Employment Index posted a second consecutive monthly increase, rising by 0.17 points to 110.35. Net positive hiring intentions reflect improving sentiment and output among the services sector with the overall uptick driven in particular by improved sentiment among services firms off the back of rising output growth.

While there are expectations that unemployment may rise due to a likely recession, this isn’t anticipated to reach the same levels seen during the COVID-19 pandemic or in the aftermath of the financial crisis.

Kaley Crossthwaite, Partner at BDO LLP, said:

“It’s encouraging to see business optimism leading to renewed hiring intentions once more as businesses see input price and supply chain pressures ease slightly. Improvements in the Output and Inflation Indices will only lead to a better outlook, as they work to drive growth and leave signs of a downturn in the past.

“However, with the less generous Energy Bills Discount Scheme now in place and expectations of a recession remaining, the economy is likely to face further headwinds despite recent resilience. Businesses need as much certainty and support as possible to continue weathering the persistent challenges ahead.”

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.

	March 2023 (Figures for this report)	February 2023	January 2023	March 2022
BDO Optimism Index	97.09	97.36	91.88	107.49
BDO Output Index	99.48	98.56	95.30	115.13
BDO Inflation Index	110.99	113.18	114.16	110.97
BDO Employment Index	110.35	110.18	109.97	112.74

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine – entrepreneurially-spirited, high-growth businesses that fuel the economy.

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed. 

BDO LLP

BDO LLP operates in 17 offices across the UK, employing 7000 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 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.

Business Trends

BDO’s Business Trends is the ‘poll of polls’ regrouping data from the UK’s main business surveys, calculated by taking a weighted average of the results.

BDO’s Employment, Inflation, Optimism and Output Indices are 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, the Markit and Chartered Institute of Purchasing and Supply’s (CPS) Surveys of Manufacturing and of Services; the DG ECFIN industrial and services confidence indices; the RICS construction market survey; the Manpower Employment Outlook Survey; and Eurostat’s monthly business surveys.

Taken together the surveys cover over 4,000 different respondent companies, covering a range of different industries and business functions. Together, they make up the most representative measure of business trends available.

Contacts

Verriin Kaur
vkaur@headlandconsultancy.com
(+44) (0)7786 767582