Declining business confidence points to negative growth in Q1 2012

Declining business confidence points to negative growth in Q1 2012

Manufacturing and service sectors plummet to two-year low

UKbusiness confidence is at a low point not seen since the end of the recession, according to the latest Business Trends report by accountants and business advisors BDO LLP. Declining confidence in the sectors has resulted in a broad-based loss of confidence.  For the first time since July 2009, both the manufacturing and service sectors are showing optimism levels below the crucial 95.0 mark that indicates growth. 

The Optimism Index - which predicts business confidence two quarters ahead – therefore indicates that neither sector can be relied upon to lead the economy’s recovery. In particular, confidence in the manufacturing sector is low. Its optimism score has fallen from 116.4 to 88.2 - a huge 28.2 points - in just seven months.

Overall, the BDO Optimism Index has fallen to 93.4, pointing to negative growth in Q1 2012. This is the first time the index has dipped below 95.0 since January 2011.

Businesses’ pessimism is also compounded by the BDO Output Index, which measures UK businesses’ short-run turnover expectations.  This fell to 93.3 in September, again its lowest level since the summer of 2009. 

There is little sign of a reversal of this trend, as hiring intentions in the manufacturing and services sectors indicate further headcount reductions ahead. The overall growth prospects for the UK labour market are equally bleak - the BDO Employment Index fell for the fourth consecutive month in September, and official data for the three months to July show the largest quarterly rise in unemployment since August 2009.

Peter Hemington, Partner, BDO LLP, commented: “Businesses’ hiring intentions point to more job losses ahead which, coupled with tumbling optimism and output, indicates tough times in early 2012. Given that the latest ONS growth figures have been revised downwards, this concern is even more acute.

“To reinvigorate the UK economy we urge the government to invest in business by implementing supply side reforms – particularly reform of the tax system - and to introduce measures that encourage private sector investment in infrastructure.

“We have been calling for expansionist policy from the Bank of England for some time and are pleased that the government has pledged to inject a further £75bn into the economy.  Given the data we’re seeing, this will provide a much needed and timely boost.  In addition, we welcome the Chancellor’s proposed credit-easing scheme; however given that any effects are not likely to be felt until 2013, the more immediate measures to salvage the UK’s ailing economy are imperative.”