Eurozone worries dent confidence

BUSINESSES should continue to enjoy growth well into the new year despite bleak economic prospects on the continent, according to the latest Business Trends report from accountancy group BDO.

But stagnation in the Eurozone, the UK’s biggest trading partner, has affected manufacturing orders and wider business confidence.

BDO’s Output Index, which tracks UK businesses’ order books, held steady at 103.2 in November.

This suggests that GDP growth over the next three months should be comfortably above the long term trend of 2.25%.

However, the output index for the manufacturing sector fell to 109.1, as weak Eurozone growth continued to undermine export orders. There was a 0.3 point rise in the services sector index, which accounts for three quarters of UK economic output.

The Optimism Index, which tracks how businesses expect orders to develop over the near term, fell from 104.6 in October to 103.9 in November, largely driven by stalling growth in the Eurozone, the UK’s main trading partner.

But BDO said the dip should be seen as a tempering of confidence rather than a slide back into difficult business conditions and GDP should continue to expand at an annual rate in the range 2.5%-3%.

Partner Tim Entwistle said: “Despite the gloomy and deteriorating Eurozone economy, businesses are successfully weathering the storm and are on course to enter 2015 on the front foot, sustained by solid and continued growth.

“However, delve a little deeper and one developing trend poses cause for concern. Despite UK employment levels being on the up, income tax receipts for the year have been lower than expected. This suggests that the quality of jobs being created is low, while much is being made of job creation as evidence of economic policy success.”