Wednesday, August 4, 2021

Optimism of UK businesses hits seven-year low

A fall in optimism in both the services and manufacturing sectors has caused business confidence to hit its lowest level since March 2012, according to a new report from accountants and business advisors BDO LLP.

BDO’s Optimism Index, which provides a comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, fell by 0.67 points during October to 95.59, just above the 95 level which indicates zero growth. This fall was predominantly driven by a substantial decline in manufacturing optimism – which plummeted 3.38 points – while the services sector also slipped 0.34 points.

Dwindling sentiment comes as UK business output endured a tough October, with declines in both sectors pulling the Output Index down by 0.75 points to 96.69. Manufacturing fared the worst, falling for a thirteenth consecutive month to hit 87.10 points – a 0.90 drop from September and well into recessionary territory – as weak global demand and Brexit-based uncertainty continued to cast gloom over the sector.

Elsewhere, the BDO Inflation Index fell by 1.11 points to 94.25 in October. This brings the index to its lowest level since May 2016 – the month before the EU referendum – the outcome of which drove the pound down, causing a spike in import inflation which has taken two years to subside.

Commenting on the findings, Andrew Mair, Partner and Head of BDO LLP in the East Midlands, said: “The last time we saw business confidence at such a low level was when the country was fighting it’s way out of the doldrums caused by the global financial crisis. With a general election looming, continued political volatility in the UK remains a key driver of falling optimism.

“Given British businesses are telling us that new hires and investment are hard to justify at the moment, growth will continue to remain elusive until there is some kind of resolution of the Brexit conundrum.”

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