Rapid economic growth forecast as business optimism reaches highest level for 22 years

February 10, 2014

Optimism among UK businesses reached its highest level since 1992 in January, pointing to rapid economic growth over the coming six months, according to a major new survey published yesterday.

Manufacturers are particularly upbeat about their prospects and the overall high confidence levels among businesses are likely to lead to strong employment growth as firms take on more staff to meet with increased demand for products and services.

The picture emerges from the latest Business Trends report by accountants BDO, which covers the West of England from its office in Bristol.

The BDO Optimism Index, which predicts business performance two quarters ahead, reached 103.8 points last month, up from 103.4 in December – the highest reading since it began 22 years ago and well above the 100 mark, meaning the economy is expected to outperform its long-term historical growth trend.

In the manufacturing sector, the optimism sub-index rose to an all-time high of 117.1, up from 115.5 in December. In the service sector, which accounts for roughly three quarters of the economy, confidence rose to 101.2 from 100.7 in December.

In tandem with improved confidence, businesses’ hiring expectations increased markedly in January with BDO’s Employment Index rising from 99.4 in December to 101.3.

The index now stands at its highest level since August 2008 – above the crucial 100 mark for the first time since March 2011 and signalling that job creation is likely to exceed trend growth over the coming months.

The survey also shows that low or negative business cost inflation is helping companies – especially manufacturers – control costs. The BDO Inflation Index read 97.9 in January, its lowest level since November 2009 and down from 98.7 at the end of last year.

Manufacturers have been helped by falling input prices over the past year while in the service sector, annual wage growth of only 0.9% held down the cost of inflation for labour-intensive services firms.

BDO partner in the West, Graham Randall, said: “An interesting feature of the recovery so far has been the way in which productivity remains at levels last seen in late 2005. Looking at this optimistically, this means that the economy can continue to grow for some time by increasing productivity before wage-related inflationary pressures begin to kick in.”

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