Business output falters but firms remain optimistic - BDO

Business output has fallen but firms remain optimistic about future growth, while employment continues to rise, according to the latest Business Trends Report by accountants and business advisors BDO.

BDO’s Output Index, which measures UK business output, fell to 99.97 from 100.05 in March, putting the indicator below the long-term growth trend of 100. A fall in both manufacturing and services output drove the decline.

Despite the slow in output, BDO’s Optimism Index reveals that businesses remain confident about their financial prospects. The Index, which shows how firms expect output to develop in the next three to six months, increased to 102.49 in April from 102.26 in March.

This indicates that a slowing Eurozone, geopolitical uncertainty and compliance costs associated with the incoming General Data Protection Regulation (GDPR) are failing to dampen the confidence of UK businesses.

The positive outlook was likely prompted by the strengthening of household finances, a key driver of demand for firms’ products.

Businesses also remain confident about growing their workforce. BDO’s Employment Index, which tracks firms’ intentions to hire in the coming six months, climbed for the fifth consecutive month and reached a record high of 112.29.

The continued rise of the Employment Index suggests that the strength seen in the labour market is set to continue and paints a healthy picture for the economy. In tandem, the latest Office for National Statistics (ONS) figures show that the rate of unemployment fell to 4.2 per cent in the three months to February, the lowest level since 1975.

Martin Gill, lead partner of BDO LLP in Scotland, said: “The optimism of both the manufacturing and services sectors is encouraging for the health of the Scottish and UK economy in the face of underwhelming business output.

“Weathering a string of shocks to the economy, which include a slowing Eurozone and continued geopolitical uncertainty, comes down to good management from business leaders. Expectations for a Bank of England interest rate rise this month now look increasingly remote, but well managed businesses will still be looking for ways to insulate themselves against further shocks.”