Optimism at new peak
Rising exports fuel rise in business confidence
Business confidence is at its highest for 15 months on the back of an upbeat outlook for the UK economy fuelled by rising export opportunities.
Accountancy firm BDO’s Optimism Index, which indicates how companies expect their order books to develop, increased from 98 to 102.2 in December, above its long term trend.
This suggests that businesses remain resilient following the EU referendum result, the declining value of sterling and volatility in the global economy.
The survey result follows a sharp improvement in both manufacturing and services sectors which gained momentum towards the close of 2016.
The four-point increase was the sharpest 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.
Martin Gill, head of BDO in Scotland, 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.”