Business optimism has crashed to its lowest level since September 2012, when the UK economy was battling to fight off a double-dip recession, according to a new report from accountants and business advisers BDO LLP.
BDO’s Optimism Index, which shows how businesses expect output to develop in the next three to six months, plummeted to 96.10 in March from 99.79 in February. The report registers the worst monthly drop in the optimism index since November 2008, during the dark days after the fall of Lehman Brothers. In absolute terms, sentiment is now weaker than its previous low point after the UK’s vote to leave the EU in 2016.
The services sector, which comprises around 80% of UK GDP, drove the overall decline in confidence with the sector index falling by a dramatic 4.15 points to 95.13 in March.
Despite the plunge in optimism, BDO’s Output Index, which measures UK business output growth, held steady at 98.74 in March, up 0.42 from 98.32 in February. This suggests the economy is performing better than expected given the challenges of the domestic political environment and the gloomy global business outlook. While output growth is in positive territory, it remains below the average growth trend of 100 and is no doubt inflated due to well-documented stockpiling at an all-time high.
Commenting on the BDO Business Trends Report’s findings, Malcolm Thixton, Lead Partner at BDO in Southampton, said:
“Continued uncertainty about Brexit has led to a severe worsening of expectations about our near economic future. What we’re now seeing is a sudden realisation that a no deal Brexit is both a real and imminent possibility.
“With optimism at levels last seen when we just avoided double dip recession in 2012, UK businesses expect a zero-growth economy as the backdrop to their plans. This matters, because worried businesses don’t hire or invest, creating the conditions for a marked downturn.
“Looking on the bright side, most businesses are not unhappy with current trading. If the fear of no deal can be lifted, we should hope for a quick return of confidence, and perhaps even a “no-deal averted” bounce in the economy. Let’s hope our politicians can deliver this.”
