BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, increased from 98.0 to 102.2 in December, above its long term trend. This signals that businesses are continuing to stay resilient following the referendum result, the declining value of sterling and volatility in the global economy.
The rise is a result of a sharp improvement in both manufacturing and services sectors which gained momentum towards the close of 2016. UK car production saw the strongest November in seventeen years. This four-point increase in optimism was the sharpest observed since 2009 and indicates businesses are as confident as they were in September 2015.
The cheaper pound has made British exports more price competitive, contributing towards the positive mood. Employment levels are also healthy and have remained resilient through a turbulent 2016. BDO’s Employment Index, which reflects firms’ hiring intentions, continues to be above the long-term trend and currently sits at 101.1.
However, inflation continues to rise following the increase in oil prices and the weaker pound. BDO’s Inflation Index – which reflects the costs of goods – has risen to 103.8 from 103.6. The full effect of rising inflation is yet to be experienced by businesses and consumers and remains a threat to overall confidence and UK economic growth.
Commenting on the findings, Peter Hemington, Partner, BDO LLP, said: “British businesses are feeling pretty confident at the moment, helped by the impact of the currency depreciation on export competitiveness. There’s also a feeling out there that the world economy is picking up again as we go into 2017. Brexit may mean gloomy news in the press and, at times, chaos in government. But our business community is getting on with it on the basis that opportunities for growth are there to be grabbed.
“One bright spot is the way in which the government has reached out to UK business in developing its Brexit strategy – a more pragmatic agenda seems to be emerging as a result. We also encourage the Chancellor and the Bank of England to be highly proactive in their policy responses if EU related jitters are seen in the coming months.”