Business optimism across the UK has flatlined following December’s General Election as businesses wait to see the impact of the new government and its policies, particularly regarding how the UK will leave the European Union.
BDO’s Optimism Index, which provides the most comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, remained virtually static (+0.01 points) at 95.72, lingering just above negative territory.
The overall index covers optimism regarding services & manufacturing, both of which remained steady (services no change; manufacturing +0.09). While some may have expected a more significant increase in optimism given the greater certainty, the reaction is in line with recent UK general elections. Optimism stayed flat following the four most recent elections as businesses adopted a similar “wait and see” approach.
Despite a reluctance to commit to long-term planning, BDO’s Output Index increased by 0.43, suggesting some short-term positivity. This, however, hides the disparity between BDO’s Manufacturing Output and Services Output Indices. BDO’s Manufacturing Output index entered its 15th consecutive monthly fall, falling by 0.63 points. It was an increase in BDO’s Services Output Index, which rose by 0.57 points, that delivered the overall positive result. As fears over a no-deal Brexit subsided, service sector growth has stabilised leading the overall Output Index higher.
Commenting on the results, Malcolm Thixton, lead partner at BDO in Southampton, said: “UK business is hoping for a ‘Boris Bounce’. However, we’ve seen in the past that post-election changes in optimism take a while to feed through, even where the result is decisive as this. Added to this, British businesses are still waiting to see the UK’s EU exit deal.
“However, it’s difficult to find a business person who isn’t hugely relieved to see the back of last year’s political chaos. From experience, this change of mood should feed its way through into a more upbeat approach to hiring and investing as we go through the year.”
Meanwhile BDO’s Employment Index remained flat through December, rising by only 0.03 points as a strong employment rate is balanced by lower hiring. Year on year, the number of vacancies fell by 59,000 throughout 2019, the biggest fall since the financial crisis of 2009.
Thixton added: “December’s Business Trends figures show the tricky economic landscape that the new Government must contend with. Their key challenge must be to find a way to kickstart growth in 2020.”