The new Conservative government has inherited a confident business community but underlying fragility is a cause for concern, according to the latest Business Trends Report by accountants and business advisers BDO LLP in the East Midlands.
BDO’s Optimism Index, which predicts business growth six months ahead, held firm this month at 104.7 pointing to strong confidence among firms in the region. This suggests businesses have been unruffled by Thursday’s election and are resilient in the face of Eurozone uncertainty.
There may be good news to come, as BDO’s Output Index rose to 104.3 this month from 103.7, indicating that growth could speed up in the latter half of 2015 following a weaker start to the year.
However, sustained growth depends on companies converting their confidence into the capital expenditure needed to boost productivity. Investment in skills and equipment could help to tackle stagnant productivity levels, boosting business output and ultimately growth.
The new government must act quickly to put in place policies encouraging businesses to invest. BDO would like to see the government permanently increase the annual investment allowance (AIA) to £5 million, giving a real incentive for businesses to invest in the capital assets that will drive future growth, and give businesses the confidence to plan ahead. It should also consider a VAT zero rating of supplies to companies that export. The UK currently allows manufacturers to zero rate their exports but not their suppliers.
Commenting on the findings, Gareth Singleton, partner and head of BDO LLP in the East Midlands said: “Ahead of the 2010 election our data showed high levels of business confidence, much like this time around. However this fell away not long after. To avoid this happening again, the new government needs to put firm actions in place to help businesses thrive.
“It is encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new government, but the confidence that counts is the confidence that converts to businesses actually investing. Our new leaders must help with this by putting tangible measures in place that will encourage businesses to invest in training or research, technology and equipment to help improve productivity.
“The new government also has the opportunity to boost future economic growth by investing judiciously in our country’s infrastructure. I hope that they will take it.”
