The slowing services industry is taking its toll on the UK economy, according to the latest Business Trends Report by accountants and business advisers BDO LLP.
The latest report shows that the slowing services sector is knocking the confidence of UK businesses, with both BDO’s Output Index and BDO’s Optimism Index falling for the past six consecutive months.
BDO’s Output Index – which reflects companies’ experience of orders for the coming three months – has dropped from 101.7 in February to 101.3 in March this year. While BDO’s Optimism Index – which predicts growth six months ahead – has fallen to 99.4. The index shows that business optimism is now underneath the long term trend and is at its lowest in more than two years.
The gloomy figures tally with the services sector output index which has now fallen for five months running, from 103.9 in November 2015 to 102.3 in March 2016. Recent figures1 have suggested that much of the caution is driven by firms feeling starved of investment, as uncertainty about the UK’s future membership of the EU delays spending decisions.
The picture looks worse for manufacturing. Its optimism sub-index now stands at 87.1, giving a strong indication that manufacturing firms’ order books will decline sharply in the next six months if nothing changes.
BDO’s Inflation Index offers some hope for manufacturers, rising 0.1 to 96.8 in March. However, as commodity prices stay low, the minor increase is not enough to give a much-needed boost to some of the most important sectors such as the steel industry.
Commenting on the findings, Andrea Bishop, Lead Partner, BDO LLP Bristol, said:
“The UK’s slowing economy is in need of additional support to protect its growth. Recently both the IMF and the OECD have warned of the dangers of too much austerity in the UK.
“The government can currently borrow at rates never seen before. It is in a prime position to safeguard economic growth by investing in our public infrastructure. Expansion in our road, house and rail building programme could reignite UK manufacturing and our steel industry would be a prime beneficiary.”
