South East: Business optimism highest in 15 months, says BDO

UK business confidence is rising fast on the back of an upbeat outlook for the UK economy, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, increased from 98.0 to 102.2 in December, above its long-term trend.

The rise is a result of a sharp improvement in both manufacturing and services sectors which gained momentum towards the close of 2016. UK car production saw the strongest November in 17 years. This four-point increase in optimism was the sharpest observed since 2009 and indicates businesses are as confident as they were in September 2015. The cheaper pound has made British exports more price competitive, contributing towards the positive mood.

Employment levels are also healthy and have remained resilient through a turbulent 2016. BDO’s Employment Index, which reflects firms’ hiring intentions, continues to be above the long-term trend and currently sits at 101.1.

However, inflation continues to rise following the increase in oil prices and the weaker pound. BDO’s Inflation Index – which reflects the costs of goods – has risen to 103.8 from 103.6. The full effect of rising inflation is yet to be experienced by businesses and consumers and remains a threat to overall confidence and UK economic growth.

Malcolm Thixton, lead partner at BDO in Southampton, commented: “One bright spot is the way in which the government has reached out to UK business in developing its Brexit strategy - a more pragmatic agenda seems to be emerging as a result. We encourage the chancellor and the Bank of England to be highly proactive in their policy responses if EU related jitters are seen in the coming months.”