26 September 2014
There are signs that business confidence in the UK is plateauing, according to BDO’s Business Trends report.
The report found that confidence among businesses fell for the first time in six months in August, indicating that world events are bringing the rising streak – also called the bullish streak – in business, to an end.
Using another form of recording and analysing business sentiments, the BDO Optimism Index, which predicts businesses’ growth expectations over the next six months, fell for the first time in six months to 105.0 in August (from 105.1 in July). Although small, the drop gives a firm indication that economy-wide growth may plateau during the remainder of 2014, driven mainly by a steep decline in manufacturing optimism. On the positive side, the UK is still well above the 100 mark, which indicates the country’s long-term average growth.
Manufacturers' confidence fell to 118.8 in August from 119.9 in July. As well as confidence returning to traditional levels from 2014's earlier above-average rates, weak demand in the Eurozone is likely to have contributed to this fall as the sector relies heavily on exports to European nations. A 0.1 point rise in the sub-index for the services sector did not provide enough upward momentum to offset the drop in manufacturing, even though services firms account for over three quarters of the UK economy.
Defying evidence of cooling activity in other indices, the BDO Employment Index, which predicts companies' hiring intentions over a three month horizon, grew strongly from 109.6 to 111.2 in August. This is the seventh month in a row that the Employment Index has risen, suggesting that the UK unemployment rate could soon return to pre-crisis levels.
Commenting on the findings, Partner at BDO LLP, Peter Hemington said: ‘After a strong start, the rest of 2014 is looking increasingly uncertain for UK businesses and manufacturers are being most affected. With anaemic growth enduring in our key trading partner – the Eurozone – and external shocks such as the crisis in Ukraine further dampening confidence, no one should be surprised to see UK growth impacted in the second half of 2014.‘An important knock-on effect in this regard relates to the Bank of England's deliberations around interest rates. With weak demand in Europe keeping cost pressures on UK firms very low and domestic threats such as an overheating housing market seemingly largely under control, there seems to be very little in the short term that would necessitate an interest rate rise. The consensus is that rates will rise in the first quarter of 2015. However, it would be no surprise if this moves back to later in 2015.’