Business confidence is improving

The BDO Optimism Index increased by 1.7 points last month following its 21-year low reading in January, but despite this increase, businesses still do not anticipate growth in the next two quarters.

A sharp increase in the BDO Inflation Index also points to further pressure on businesses’ bottom lines.

The optimism index, which predicts business performance two quarters ahead, increased to 90.6 in February from a reading of 88.9 in January, the biggest increase in the index for five months. The Index remains well below the 95.0 mark which indicates growth.

The inflation Index, which measures inflationary expectations one quarter ahead, increased from 100.4 in January to 101.5 in February.

BDO’s Output Index, which predicts short-run turnover expectations, saw a decrease from 92.3 last month to 92.1 in February, suggesting that economic conditions will remain tough in three months time.

Mark Anslow, partner and head of BDO in the Midlands, said the firm was encouraging the Bank of England’s Monetary Policy Committee to increase its quantitative easing programme, but the Government needed to take further action to ensure that funding went to where it was most needed – to British business and to the housing market.

“Not only have we got the most consolidated banking market in the G7, we also have the smallest corporate bond market. Action needs to be taken both to address these issues and to help the banks to accelerate economic recovery,” he added.

Cautionary

The services sector continues to struggle, with a reading of 91.5, significantly below the 95.0 mark which indicates growth. This is seen as a cautionary sign for the UK economy, as the services sector accounts for roughly three quarters of total output.

The BDO Monthly Business Trends Indices are prepared on behalf of BDO by the Centre for Economics and Business Research.

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey, the Bank of England Agents’ summary of business conditions and the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services.

Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees.