UK business survey suggests confidence at 21-year low

UK Manufacturing

Is it too early to predict that the UK will avoid its third recession in five years? It may be, according to a new survey by accountants and business advisers BDO LLP.

The firm’s latest Business Trends report shows that business confidence in January reached its lowest point since the monthly survey was launched 21 years ago.

BDO’s Optimism Index fell to 88.9 last month from a reading of 90.3 in December. January was the eighth consecutive month that this index has remained below 95.0, the mark which indicates growth.

According to BDO its latest findings suggest the UK economy will struggle to grow in the first quarter of 2013. This poses the risk of a triple-dip recession, as the economy contracted in the fourth quarter of 2012 after just one quarter of growth.

Short-run turnover expectations also point to uncertainty in the business environment, with BDO’s Output Index falling to 92.3 last month from 93.1 – moving further away from the 95.0 mark indicating growth.

Employment continues to be a relatively bright spot amidst the economic gloom, however: another component of BDO’s monthly report, the Employment Index, rose above the crucial 95.0 mark in January for the first time since April 2012, giving one indication of improving confidence. This measure, which gauges businesses’ hiring intentions over the next two quarters, rose to 95.1 from 93.0 in December.

BDO noted that this trend is in line with the most recent labour market figures from the Office for National Statistics, which put unemployment at 7.7% in the three months to November, down from 7.9% in the previous quarter.

Signs of increasing confidence can also be seen in the manufacturing sector, with manufacturers’ Optimism Index score rising to 95.2 in January from 91.9 in December, and their Output Index score, which records order book strength, moving up to 92.3 in January from 90.6 in December.

Commenting on the mixed picture coming from the January report, BDO partner Peter Hemington commented that business confidence continues to weaken despite the strengthening labour market, and improved hiring intentions are not translating into growth plans. Firms seem to be wary of making concrete plans for expansion after five years of zigzagging economic growth, and have become resigned to economic stagnation, he suggested.

“To end this cycle, it is imperative that the government implements plans to expedite growth. Without growth incentives, we will continue to see UK businesses reluctant to invest and expand, which poses a grave threat to the UK’s economic recovery,” Hemington concluded.

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