UK business confidence falls to foreclosure level as recession looms
British business confidence has fallen to its lowest level since the third national COVID lockdown, as businesses continue to be spooked by a looming recession.
The latest edition of BDO’s Business Trends Report found that business optimism and production fell to the lowest levels since February 2021 in October at 94.63 and 93.10, respectively.
Both indexes are now in contraction territory, below 95 points – considered the dividing line between growth and decline, an indicator of recession.
The decline in production productivity was led by declines in the services and manufacturing indices for the second consecutive month.
The continued disruption of global logistics networks and rising input prices have pushed manufacturing activity into negative territory, while the cost of living crisis has impacted consumer demand, leading to lower production of services.
Business confidence followed a similar downward trajectory as the slowing macroeconomic environment led to a seventh consecutive month of decline in the BDO Optimism Index.
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The BDO Inflation Index also hit a record high of 120.67 during the month, after the energy price cap was raised in October. This has forced companies to reassess their production against the headwinds on the demand and supply side, and to be cautious in their outlook and hiring intentions.
This, coupled with a subdued outlook, caused the employment index to fall to the lowest level in at least six months, with further declines expected in the coming months.
The accounting and business advisory firm said the employment index fell 1.14 points to 13.05 last month, reflecting declining business confidence.
However, the index remained resilient and the jobless rate stood at an all-time low of 3.5% in the most recent three-month reading to August.
Although the index remains firmly in positive territory, hiring intentions should decline over the longer term.
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“A contraction in optimism and output is a worrying sign for businesses, as inflation is likely to continue to climb ahead of Christmas. A weaker currency and lower consumer purchasing power will have real and tangible consequences for businesses that rely on imports or customers in the retail and service sector, alongside the ripple effects of managing political and economic uncertainty,” the report states.
“We also know that rising energy costs are a top concern for nearly half of midsize businesses this winter, as we are only just beginning to see the impacts of the rising energy price cap. . Businesses will look to the fall statement for the support they need as they face a difficult time ahead.
The data comes as the BoE warned this week that Britain faces its longest recession since the 1920s.
Threadneedle Street said the UK economy could experience eight consecutive quarters of negative growth if current market expectations turn out to be correct. It would be the longest period of uninterrupted decline the nation has seen in about a century.
However, it would be a milder recession than in the past.