UK: Business prospects at a 26-month high, according to BDO output index

Marilyn Martin, regional director of BDO LLP

Marilyn Martin, regional director of BDO LLP - Credit: Archant

Short-term business prospects have reached a 26-month high, according to the latest Business Trends report by accountants and business adviers BDO LLP in East Anglia.

BDO’s Output Index, which predicts short-run turnover expectations and reflects the current experience of businesses, climbed to 96.8 in July up from 94.9 in June and the best since May 2011.

It is represents the fifth consecutive monthly improvement in the index and takes it back above the crucial 95.0 mark that indicates growth.

Output in the services sector, which makes up roughly three quarters of the economy, rose from 94.7 in June to 96.5 in July, while the manufacturing sector rose from 95.7 in June to 98.3 in July.

Business confidence also continued to rise with BDO’s Optimism Index, which predicts business performance two quarters ahead, moving up from 94.3 in June to 95.6 in July.

This represents a sixth consecutive monthly increase and takes the index to its highest level since April 2012, with the reading above 95.0 indicating that growth is likely to be maintained through the rest of 2013.

The rise in confidence is also feeding into businesses’ employment intentions and BDO’s Employment Index has continued to move upwards, increasing to 97.0 from 96.7 in June.

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BDO’s Inflation Index also moved in the right direction, with overall inflation expectations decreasing to 102.2 in July, down from 103.4 in June, thus easing financial pressures on businesses.

Marilyn Martin, partner and head of BDO LLP in East Anglia, said: “It’s encouraging to see short-term business prospects improving and confidence in our economy continuing to strengthen.

“Indeed, all of our indices moved in the right direction this month, suggesting that the new Bank of England governor Mark Carney has joined at an opportune time.

“However one need only look at the last five years of zig-zagging economic growth and business confidence to know that sustained expansion will not be achieved easily.”

She added: “Carney’s decision to peg interest rates to unemployment levels is a positive step, although I expect the new governor would have preferred a target of 6.5%. Conservative members of the council are likely to have felt that mirroring the US Federal Reserve was a step too far, with the modest target of 7% representing a compromise.”

The monthly Business Trends indices are prepared for BDO by the Centre for Economics and Business Research and are claimed to be the most representative measure of business trends available,

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys, including the results of the quarterly CBI Industrial Trends Survey, the CBI Monthly Trends Enquiry which is carried out in the intervening months, the Bank of England agents’ summary of business conditions, and the Markit/CIPS Manufacturing and Services PMI data, which together involve more than 4,000 diffeent responses.