BDO survey points to growing confidence

SHORT-term business prospects have reached the highest level since March 2011, according to the latest Business Trends report by accountancy firm BDO.

BDO’s Output Index, which predicts short-run turnover expectations, climbed to a 29-month high of 98.3, up from 96.8 in July.

The figure is close to the 100 mark that indicates long run average trend growth, and suggests the economy is poised to experience growth in the next quarter.

Output in the services sector, which makes up roughly three quarters of the UK economy, rose from 96.5 in July to 97.7 in August, while the manufacturing sector rose above 100 to 100.7 in August from 98.3 in July.

Business confidence also continued to rise. BDO’s Optimism Index, which predicts business performance in two quarters time, increased for the seventh consecutive month – from 95.6 in July to 98.0 in August – its highest level since May 2011 and closer to the 100 mark.

The services sector recorded a healthy Optimism score of 97.7, while manufacturing confidence, buoyed by improving conditions in the Eurozone, leapt up from 91.4 in July to 99.6 in August.

Improving business conditions and confidence are not being matched by a corresponding pick up in companies’ hiring intentions however. BDO’s Employment Index was unchanged at 97 and it has only moved up by 0.6 points in the last five months.

Tim Entwistle, partner and head of BDO LLP in the North West, said: “We’re encouraged to see that business conditions and confidence are continuing to improve, and that the economy is set for relatively robust expansion for the remainder of 2013.

“However the sting in the tail is that the improvement is not being reflected in businesses’ hiring intentions. This is particularly pertinent given the Bank of England Governor Mark Carney’s decision to peg interest rates to unemployment levels. Our data suggests that Carney’s target may remain elusive and interest rates will remain at their record low for some time.”