Short term business confidence over the next quarter has registered a second consecutive increase from 88.3 in February to 88.6 in March, according to the latest Business Trends report by accountants and business advisers BDO Stoy Hayward LLP.
Whilst the climb in the report’s Output Index (which measures short-term confidence based on order book strength and turnover expectations) is extremely modest, it reveals an end to the trend of sharp monthly falls, indicating that whilst businesses still expect the economy to continue to contract in the next quarter, the pessimism experienced at the end of the year has now diminished.
The increase can be attributed to stabilising expectations, largely in the manufacturing sector, where the Index has risen from 80.7 in February to 82.0 this month.
The Optimism Index, which measures business confidence two quarters ahead is effectively unchanged from January 2009, from 89.9 to 90.0, suggesting that the economy will continue to contract in the second quarter of 2009.
Equally, the full force of the recession is being visibly brought to bear in the labour market, which typically lags the Output Index. The BDO Employment Index indicates that the unemployment rate will rise from 6.5 to 7.6% over the next three months, adding a further 350,000 people to the unemployment register.
With the labour market decline in full swing, the Output and Optimism Indices are signalling a recession that is on par with that of the early 80s and slightly steeper than the 90s.
Kim Hayward, lead partner for BDO Stoy Hayward in Southampton, said: “Until now, confidence has been in freefall, and while conditions in the employment market will worsen in the coming months, some businesses are starting to view the future with less trepidation. The indicators suggest that we’re unlikely to face a 1930s-style depression and the increased pressure that has been applied on banks to increase their lending is starting to bring about the desired effect. While businesses may not be turning corners just yet, many can see them on the road ahead. There is no doubt businesses will be scrutinising the Budget carefully to see what new measures will be included to help them on the journey to recovery.”
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