Business optimism hits seven-year low as Brexit deadline grows closer
Business optimism has dropped to its lowest level in seven years as the UK edges closer to the possibility of a no-deal Brexit.
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Sentiment is also now weaker than the low recorded following the 2016 EU referendum, as accountancy and business advisory firm BDO’s Optimism Index slumped to 96.1 last month from 99.79 in February.
March’s Optimism Index marks the lowest level since September 2012, when the UK was fighting off a double-dip recession.
The latest index, published by BDO this morning, marks the worst monthly drop since November 2008 – in the aftermath of Lehman Brothers’ collapse.
A 4.15 point drop in optimism in the service sector, which accounts for around 80 per cent of UK GDP, drove the overall sharp decline in confidence.
BDO partner Peter Hemington said: “Continued uncertainty about Brexit has led to a severe worsening of expectations about our near economic future.
“What we’re now seeing is a sudden realisation that a no-deal Brexit is both a real and imminent possibility.
“With optimism at levels last seen when we just avoided double dip recession in 2012, UK businesses expect a zero-growth economy as the backdrop to their plans.
“This matters, because worried businesses don’t hire or invest, creating the conditions for a marked downturn.”
BDO’s Output Index was steady at 98.74 in March, up 0.42 from the previous month, suggesting the economy is performing better-than-expected despite the uncertain political environment within the UK and the challenging global business outlook.
However, although output growth is in positive territory it is below the average growth trend of 100, and could be inflated by Brexit-related stockpiling which is at an all-time high.
“Looking on the bright side, most businesses are not unhappy with current trading,” Hemington added.
“If the fear of no-deal can be lifted, we should hope for a quick return of confidence, and perhaps even a “no-deal averted” bounce in the economy.
“Let’s hope our politicians can deliver this.”
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The index results come as Prime Minister Theresa May prepares for an EU summit on Wednesday, where leaders will decide whether to grant a further extension to Article 50 in order to avoid a no-deal exit from the European Union on Friday.