Deflation cutting firms’ costs says BDO

BUSINESSES are benefiting from cost deflation for the first time since 2009, giving them cheaper input costs to support growth, according to research.

According to its latest Business Trends report by accountants BDO the driving force behind deflation last month was the fall in crude oil prices.

This is good news for companies, particularly manufacturers, as a reduction in energy prices and other commodities ease pressure on the bottom line.

BDO is predicting steady growth in the economy is expected to continue into mid-2015, with business confidence and companies’ hiring intentions remaining high.

BDO’s Optimism Index held steady at 104.9 in February (up from 104.4 last month), indicating that uncertainty around the General Election has not swayed confidence in continued growth over the next six months. In addition, the Employment Index jumped to 113.1, from 111.6 in January, pointing to sustained job creation at a relatively rapid rate.

Tim Entwistle, partner and head of BDO LLP in the North West, said: “Businesses are well placed to take advantage of falling costs, to help them to bed in growth.

“Lower input prices will help entrench the recovery, as consumers gain more spending power.  However, the economy still has substantial spare capacity. Spending on infrastructure is one of the most effective ways to push the economy back toward full employment and keep the recovery on track. Government debt is cheaper than it’s ever been, and now, with falling raw material costs, there is a fantastic opportunity for increased public sector investment. As we head towards the Budget, the Chancellor needs to do more to capitalise on this for the benefit of all of us.”