Strong bounce back by businesses points to steady growth in 2014

December 16, 2013
By

Business confidence is running at its highest level for more than three years as the recovery gathers pace and firms put austerity behind them at last.

Manufacturers in particular are upbeat about their prospects going into the new year, according to the latest Business Trends report by accountants BDO.

Optimism among manufacturers, driven by rapid growth in new business orders, shot up from 109.6 points in October to 115.3 this month – the second highest reading in Business Trends’ 21-year history. The 100 mark indicates the economy’s long-run average.

Service-sector firms, which account for just over three-quarters of the economy, were also more optimistic – although in more measured terms – with an increase from 99.9 in October to 100.4 in last month.

Overall, business confidence increased for the 10th consecutive month, suggesting the economic recovery will gather pace in the first half of next year. It is the first time both sectors have been above the crucial 100 mark for the first time since April 2010.

BDO’s Optimism Index, which forms part of the Business Trends survey and predicts business performance two quarters ahead, increased from 101.7 in October to a 43-month high of 103.1 in November.

BDO’s Output Index, which predicts short-run turnover expectations, went up from 100.7 to 101.8.

And in further welcome news, inflationary pressures look to be receding. The BDO Inflation Index was down from 100.5 to 99.7 – below the all-important 100 mark that indicates inflation’s long-term trend.

Total wages were only 0.7% higher during July-September 2013 than one year before while oil prices fell by 2.3% over the year to November 2013 in sterling terms. Similarly, total manufacturing input prices decreased by 0.3%, further easing manufacturing cost pressures.

BDO South West partner Graham Randall, pictured, said the survey revealed a “strong and broad-based recovery”.  But he warned that challenges remained as the economy shifted back to growth, particularly around skills, planning and infrastructure.

“I think we can finally say that the key economic battleground has shifted from austerity to the new debate about how the Government can help businesses achieve sustained growth in the context of a dynamic, internationally competitive economy,” he said.

“We clearly have some substantial long-term problems in terms of an underperforming education system and a dysfunctional planning regime. Only time will tell whether the Coalition Government’s radical plans for educational reform will work, but at least there is plenty of energy behind implementing these. Planning seems to have been filed in the ‘too difficult box by successive governments, so real change is unlikely anytime soon.

“Just as importantly, there still remains a very strong case that we need to spend more on infrastructure, particularly on updating our tired, expensive and increasingly life expired energy industry.  If the government can at least partly crack these issues, the economy has a chance of getting back to good levels of sustained long-term growth.”

The table below details figures for the past three months and the same month of the previous year, aross all four indices.

 

Nov 2013

(figures for this month’s report)

October 2013

September 2013

Nov. 2012

(equivalent report last year)

BDO Optimism Index

103.1

101.7

100.7

91.4

BDO Output Index

101.8

100.7

99.5

93.4

BDO Inflation Index

99.7

100.5

100.6

99.2

BDO Employment Index

98.3

98.1

97.5

93.1

 

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