Optimism among UK businesses has fallen to a 20-year low, hitting depths not seen since comparable data began in 1992, according to the latest Business Trends report from accountants and business advisers BDO.
BDO’s Optimism Index, which predicts business performance two quarters ahead, suggests the economy will continue to contract at the start of 2013.
The survey contrasts with reports over the past few weeks suggesting a recovery in 2013 amid higher levels of business confidence.
The index fell to 89.1 in August from 93.1 in July – a sixth consecutive month of decline, with a four-point plunge from 93.1 in July. Business confidence is now significantly below the crucial 95 mark which would indicate a return to growth.
BDO’s Output Index – which predicts short-run turnover expectations – has also fallen sharply, to 90.8 in August from 93.9 in July, reaching its lowest point for 40 months. This drop neutralises hopes of recovery in the short-term. This is crystallised by data from the UK’s all important service sector – which makes up more than three-quarters of the UK’s economy – which registered a steep drop over the last month, to 92.2 in August from 95.1 in July.
Mirroring the decline in the Optimism and Output indices, BDO’s Employment Index fell to 92.1 in August. With the private sector unlikely to absorb further forthcoming public sector job cuts, conditions for UK job seekers are unlikely to improve before the end of the year.
Graham Randall, partner in BDO’s Bristol office, said: “The sluggish economic environment continues to elicit zigzagging business sentiment, with confidence now at its lowest level since Business Trends began nearly 20 years ago.
“The Government’s efforts to cut current spending may not be working out quite as planned, though we believe that the strategy in essence remains correct. But we have long been concerned that the cuts to investment spending were too drastic and that steps to redress this have been taken too slowly. We welcome positive signs that the government now wishes to boost its investment in UK infrastructure.”