‘Business confidence skating on thin ice’ -BDO

Business confidence in the future of the UK economy is hovering just above the long term trend, according to the latest Business Trends Report by accountants BDO.

BDO’s Optimism Index – which predicts growth six months ahead – is now only just above the average rate at 101.0, and is at its lowest in over a year.

The Output Index – which reflects companies’ actual experience of orders for the coming three months – is higher (at 103.3), but also on a downward trend.

The gap between businesses’ relatively strong expectations for the first quarter of 2016 and concerns for the six months ahead points to expectations of a continuing slowdown in the rate of economic growth this spring as global economic problems start to affect UK demand.

The gloomier long-term outlook is prompting fears that businesses could be reluctant to invest, which would add to downward pressure to the UK economy. As Britain’s productivity has grown at half of its trend rate in the last year, a drop in investment would hit growth prospects particularly hard.

The rate of growth in employment, measured by the Employment Index, is also dipping. The index currently sits at 105.2, the lowest it has been since early 2014. As employment returns to levels observed before the financial crisis, businesses will only be able to grow by boosting productivity.

Martin Gill, head of BDO LLP in Scotland, said: “Doubts about the world economy are making the UK’s business people question whether now is the time to ramp up their investment plans. We need to see the government’s messaging around supporting the manufacturing economy backed up with action to give businesses the confidence to invest for the future.

“For instance, increasing the annual investment allowance would provide a greater incentive for companies to invest in the plants and machinery. We can’t say that this would solve the UK’s poor productivity performance by itself, but it would be a useful and easy step for government to take to improve the ability of our economy to grow.”