UK business confidence lowest since 2012 as output drops for first time in 2019, says BDO

Business optimism in the UK fell to its lowest rate since 2012 in April, according to a report released today, in a sign that the Brexit extension has done little to cheer up the country’s gloomy businesses.

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UK business output growth declined for the first time in 2019 last month as the boost from Brexit stockpiling faded, according to the latest business trends survey from international accountancy firm BDO.

Following a dramatic fall in March of 3.69 points, BDO’s business optimism index fell further in April by 0.26 points to 95.74 – close to negative territory, which is marked by a score of below 95.

BDO said the low reading suggests the extension of Brexit until 31 October “is likely to have the effect of holding business confidence at multi-year lows, rather than delivering a notable boost to sentiment”.

The firm’s output index fell by 0.11 points to 98.63 in April, showing a slowdown in production in the economy. Declines in both the services and manufacturing sectors drove the index’s fall.

Office for National Statistics (ONS) figures released last week showed that the economy grew by 0.5 per cent in the first quarter, aided by people preparing for the original Brexit date of 29 March, which boosted demand.

However, the slowdown in optimism and output revealed by BDO today suggests economic growth will cool in the second quarter.

Today’s report showed that in the service sector, the driver of the UK economy, optimism fell for a ninth consecutive month to 95.06 in April, only 0.06 points off negative territory.

Confidence hit a 30-month low in Britain’s manufacturing sector, which has been struggling to cope with a global slowdown, increased trade tensions around the world, and Brexit uncertainty.

The BDO inflation index surged to 100.11 in April – the highest it has been since November 2018. Rising global oil prices and higher wages thanks to low rates of unemployment pushed up the index.

The accountancy firm said historically low unemployment will help the economy in the coming months and “cushion” it as the Brexit impasse continues.

“Unemployment remains at historic lows while earnings growth is robust, which appears to be supporting consumer spending for the time being,” the study said.

A more stable Chinese economy following government stimulus will also help calm global conditions, meaning UK exporters should see a pick-up in demand, BDO said.

Peter Hemington, partner at BDO, said: “The only certainty businesses have at the moment is that the UK government still doesn’t know exactly how or when the UK will leave the European Union.

He said: “We are seeing the impact of this confusion, with business confidence plummeting. An extension of Article 50 alone is insufficient to restore sentiment among businesses.”

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“In the coming months, the government should look at further policy interventions, such as increasing the Annual Investment Allowance, to help businesses invest and stimulate the UK economy,” he added.