Business confidence edges up as UK firms adapt to recession

Short and medium term business confidence has risen simultaneously for the first time in 13 months according to the latest Business Trends report by accountants and business advisers BDO LLP. The modest rise of BDO’s Output and Optimism indices suggests businesses have accepted the realities of the recession and are adapting their plans to manage against the downturn.

Despite this, the labour market picture remains bleak with BDO’s Employment Index dropping from 94.2 in January to 91.7 in February, suggesting a further 320,000 people will be added to the unemployment register over the next three months. However the increases in both the Output and Optimism Index, which predict economic growth, is a tentative sign that the recession has been factored into confidence and business planning and is in stark contrast to the collapse of these indicators since October.

 The result also indicates that businesses are taking swift and decisive action to tackle the challenges of the recession, including halting production or implementing new employment strategies to keep costs down.  This tactic is further illustrated in the report which reveals that while there has been a reduction in full time employment figures, part time employment actually rose by 33,000 in October – December 2008. 

Peter Hemington, Partner at BDO, says: “Optimism remains low and businesses expect the economy to continue to contract, but companies are now adapting their business models for an uncertain future.  It’s still too early to say if business confidence has hit rock bottom and we’ve already seen a number of false dawns, but this month’s modest increases are encouraging. We must watch carefully to see if this is the start of an upward trend.”  

The report’s Optimism Index, which measures business confidence two quarters ahead, rose to 90.5 in February from 89.9 in January. Similarly, the Output Index that measures order book strength and short run turnover expectations in the next quarter edged up to 88.3 in February from 88.1 in January 2009 - a 29 year low. 
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For more information or for the full report, please contact Kara Hill at Blue Rubicon on 020 7260 2700, or Stephanie Aneto at BDO on 0207 893 3073.

Notes to editors:

Methodological notes:
The BDO Business Trends Report Indices are calculated by taking a weighted average of the results of all the UK’s main business surveys carried out during the last month.

The BDO Monthly Business Trends Indices are prepared on behalf of BDO by the centre for economics and business research (cebr).

Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.

About BDO LLP:
Notes to editors:

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