UK business confidence returns – post Brexit shock was sharp but short

David Eagle, Partner, BDO LLP

UK businesses are starting to regain their confidence, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

The latest results indicate that businesses are now finding that the post Brexit slump has not been as severe as expected, after confidence fell to a three-year low last month.

Business optimism, which predicts growth six months ahead, is up to 98.7 from 97.9, well above the 95.0 level which would indicate the start of recessionary conditions. It is climbing back toward the 100.0 value, which signals the UK’s long term trend growth rate of just over 2%.

Business output – which reflects companies’ current experience of orders – has fallen again to 97.4 from 98.2. The Output Index is a good indicator for where GDP will be for the three months ahead.

Taken together, these results suggest that the UK experienced a short, sharp fall in business activity post referendum, but that businesses are confident that this will quickly reverse.

Further good news is that jobs continue to be created. BDO’s Employment Index – which indicates firms’ intentions to hire – remains at 100.9, above the long term trend.

Following the fall in the value of sterling, the Inflation Index has now rallied and sits at 101.4 following a prolonged period of flatness, suggesting that businesses expect inflation to rise from its current lows over the coming months.

Commenting on the findings, David Eagle, Partner, BDO LLP, said:

“After the immediate Brexit scare, businesses are becoming more confident as they start to find that, for most of us, it’s back to business as usual. But ongoing uncertainty and the likely longer-term damage if we exit the single market, are concerns which continue to justify government support for growth.

“The government must prioritise taking advantage of cheap borrowing costs to invest in infrastructure and protect the growth of our economy as we move closer to exit negotiations.”