Business confidence continues to fall following the UK’s vote for Brexit, and is now at its lowest in over three years, according to the latest Business Trends Report by accountants and business advisers BDO LLP.
Business output, reflecting companies’ experience of orders for the three months ahead, now sits slightly lower on the previous month at 98.2, down from 99.0. At the same time business optimism, which predicts growth six months ahead, has fallen from 98.9 to 97.9. These lie approximately mid-way between the 95.0 mark on the indices – below which lies possible recessionary conditions – and 100.0 – which correlates to the UK’s trend growth rate of just over 2%. So, while there is a definite and continued decline in the confidence of UK business people, the latest drops are not yet as dramatic as may have been predicted. This suggests that the initial impact of the Brexit vote has been less severe than expected.
The picture is much gloomier for UK manufacturing as the sector’s optimism sub-index dropped to a four-year low, down to 81.0 – well below the 95 mark which indicates contraction.
The falling value of sterling signals better exporting conditions and offers some hope for UK manufacturers, but rising inflation will also affect the sector by pushing up costs. BDO’s inflation index rose from 97.9 to 99.9 this month and this is set to rise further in the coming months following the drop in interest rates.
Commenting on the findings, Richard Rose, Midlands Lead Partner, BDO LLP, said:
“Brexit has compounded the continuing slowdown of the UK economy but there is opportunity as well as challenge ahead for UK businesses.
“The Bank of England’s decision to lower interest rates is a step in the right direction. We now need a concerted effort from government to lay the foundations for future growth. That means taking advantage of cheap borrowing costs to invest in UK infrastructure, encouraging prosperity across the regions and improving productivity.”
BDO’s three point Brexit plan
In order to reassure UK businesses, BDO proposes that government acts quickly to enact a three point plan to stabilise the economy and position us for growth. The plan includes:
– Encouraging prosperity in the manufacturing regions – take advantage of cheap borrowing costs to invest in business-friendly infrastructure in regions traditionally strong in manufacturing. Government plans to rebalance the UK economy must be greatly increased.
– Solving the productivity puzzle – the growing workforce is not increasing productivity, real action needs to be taken to address the productivity puzzle by incentivising investment in training and skills.
– Injecting more cash into the economy – use quantitative easing to lower borrowing costs further and encourage businesses to invest.
