UK business confidence plummets to lowest point this year

Optimism hits a six-month low while Output shows biggest drop for 12 months

UK business confidence has reached its lowest point this year, indicating a bleak second half of 2012 for the UK economy, according to the latest Business Trends report by accountants and business advisers BDO LLP.

BDO’s Optimism Index - which predicts business performance two quarters ahead - has hit a six-month low, falling for the fourth consecutive month from 95.5 in May to 93.5 in June.  This is the lowest reading since December 2011, and for the first time since January takes the Index below the crucial 95.0 mark that indicates growth.

In addition, the short-term UK economic outlook took a knock in June, as the BDO Output Index - which forecasts business conditions in one quarter’s time - fell from 96.7 to 94.8. This is the single biggest monthly fall in the index since June 2011, reflecting the rapidly weakening short term economic outlook and comes shortly after lower than expected GDP figures for Q4 2011 and Q1 2012 were unveiled. The BDO Output Index highlights the ongoing threat to growth that the UK faces for the back end of the year.

Confidence dropped particularly sharply in the manufacturing sector, as the Manufacturing Optimism Index plunged from 96.5 in May to 83.8, the lowest reading since March 2009.  With around half of manufactured exports being purchased by the eurozone, ongoing concerns about growth prospects in the bloc are clearly mirrored by the Business Trends data.

Peter Hemington, Partner, BDO LLP, commented: “The figures point to a tough economic climate for the remainder of the year, possibly beyond.  As the eurozone continues to be blighted by instability, the UK government must take steps to ensure the UK economy is not at the mercy of the single market. Since half our export goods go to the eurozone, it’s not surprising that turbulence there is denting longer-term growth prospects here.

“A cohesive and outward-looking approach is needed to ensure we exploit all potential avenues for growth – we would urge the Government to collaborate and look for unexplored trade opportunities, not only within the G20, but also with the developing economies to achieve a coordinated and global response to ongoing economic volatility.”

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For the full report, download Business Trends - July 2012

Notes to Editors
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The combined fee income of all the BDO Member Firms, including the members of their exclusive alliances, was €4.06 billion in 2011. The global network provides business advisory services in 135 countries, with almost 48,800 people working out of 1,118 offices, worldwide.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms.  BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms.

Methodology
The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the centre for economics and business research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services.

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.