Business output on verge of contraction
The UK’s business output is on the verge of contraction, according to a new report focusing on potential new business deals.
Despite strong performance in the manufacturing sector, the latest Business Trends support from BDO LLP suggests that that Britain is facing a recessionary trend.
Political and economic uncertainty mean that the firm’s Output Index has declined between May and June from 95.4 to 94.9.
It focuses on how businesses expect to develop their order books in the next three months and the score for June is below the point of contraction in the index, which is 95.0.
Business output is therefore at a four-year low while the Output Index has recorded a steady decline in growth of order books since the end of summer 2015.
As subdued growth was also noted in the first quarter of this year, the report suggests that the second quarter may be weaker than expected.
The services sector – which accounts for the majority of the UK economy – has continued to perform poorly in recent months and is stunting growth according to the report.
Manufacturing output also slowed slightly in June, but it has still shown signs of growth for the past six months – however, as the sector only accounts for 15% of UK gross domestic product, it cannot offset the slowdown seen in the services sector.
In one positive for June, the Optimism Index for the month rise from 102.8 in May to 102.9, which indicates businesses are confident for the six months ahead.
The eight point difference between the optimism and output indexes represents the highest gap ever recorded, but it does suggest that a flurry of business activity is to be expected.
According to the report, businesses delayed investment plans until there was less uncertainty following June’s general election.
A notable reduction in consumer spending, as well as a weaker pound and rising inflation have all had an impact on the services sector, the report claims.
A rise in refinancing to support growth in the coming months may therefore be expected wile a range of alternative finance options exist to help those who may be struggling to raise the necessary levels of finance.
By Phil Smith