UK business optimism rising following Brexit progress

UK businesses feel optimistic about 2018, following the progress made towards Brexit at the end of 2017.

The findings were released in BDO’s latest Business Trends Report, which pulls together results from all the main UK business surveys.

The BDO Optimism Index, which portrays how firms expect their order books to develop over the next 6 months, increased from 102.05 in November to 102.15 in December, above its long-term average.

“UK businesses collectively breathed a sigh of relief when progress towards Brexit was announced at the end of the 2017,” said Peter Hemington, Partner at BDO.

“Business leaders are now more confident about the year ahead and are bolstering their recruitment efforts as a result. However, despite unprecedented levels of employment, business output continues to slow.”

Business growth has fallen to a 23-month low. BDO’s Output Index, which indicates UK business output, fell to 98.45 in December from 98.99 in the previous month.

Business output growth has now fallen consistently for the past 5 months.

This falling growth is being driven by the slowdown in the services sector, which accounts for nearly 80% of all UK GDP.

The firm’s Services Output Index unsurprisingly sits at a 23-month low, falling from 98.95 in November to 98.21 in December.

“While the government prioritises securing our future outside of the EU, it must not overlook the immediate challenges stifling the growth of our economy. The perennial productivity problem must be addressed by accelerating investment in infrastructure and training before we fall further behind our G7 counterparts,” said Hemington.

In contrast, the UK manufacturing industry continues to strengthen. In December, BDO’s Manufacturing Output Index rose above its long-term trend of 100 for the first time in 4 months, up to 100.33 from 99.33.

This was helped by the Autumn Budget announcement of an increase in infrastructure investment.

Uncertainty surrounding Britain’s exit from the EU has hit the services sector hard, but since Brexit negotiations started to progress in December last year, businesses started feeling more confident and optimism is rising as a result.

The jobs market also reflects this optimism as firms’ hiring intentions have returned to record highs.

The Employment Index in BDO’s report has increased by 0.2 to 111.26 in December. The figure is far above the long-term trend and only just below its record high of 111.72.

Findings suggest that employment levels could surpass records set in September last year. A potential explanation is the recent reduction in migration figures as a result of Brexit.

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