UK business confidence falls to lockdown levels as recession looms

A square in Canary Wharf, east London.  Business confidence was at its lowest since the third lockdown

Business Confidence: The decline in manufacturing productivity was caused by a fall in both services and manufacturing indices for the second straight month. Photo: Press Association

Business confidence in the UK fell 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 showed that both business confidence and production fell to 94.63 and 93.10 respectively in October, the lowest levels since February 2021.

Both indices are now in contractionary territory, below the 95-point mark – which is seen as a watershed between growth and decline, an indicator of a recession.

The drop in manufacturing productivity was caused by a decline in both services and manufacturing indices for the second straight month.

Continued disruption to global logistics networks and higher input prices pushed manufacturing activity into negative territory, while the cost of living crisis hit consumer demand and lowered service production.

Business confidence followed a similar downward trend as the weaker macroeconomic environment led to a seventh straight month decline in BDO’s optimism index.

Continue reading: UK construction activity continues to rise but new orders are declining

BDO’s inflation index also hit a record high of 120.67 during the month after the energy ceiling was raised in October. This has forced companies to re-evaluate production in line with demand and supply-side headwinds, and to exercise caution in their outlook and hiring intentions.

This, coupled with a muted outlook, caused the employment index to fall to its weakest reading in at least six months, with further declines expected in the coming months.

The accounting and consulting firm said its employment index fell 1.14 points to 13.05 last month, reflecting dwindling business confidence.

However, the index remained resilient and the unemployment rate was at an all-time low of 3.5% in the three months to August.

Although the index remains clearly in positive territory, hiring intentions are likely to decline in the longer term.

Continue reading: Interest rates were raised by the Bank of England to a new 33-year high

“A fall in both optimism and production is a worrying beacon for businesses as inflation is expected to continue to rise in the run up to Christmas. A weaker currency and a drop in consumer spending power will have real and tangible consequences for companies that rely on imports or customers in the retail and service sectors, alongside the knock-on effects of dealing with political and economic uncertainty,” the report says.

“We also know that rising energy costs are a top concern for nearly half of mid-market companies this winter as we are just beginning to see the impact of the energy price cap hike. Businesses will look to the Fall Statement for the support they need as they face a difficult time.”

The data comes as the BoE warned this week that the UK is facing its longest recession since the 1920s.

Threadneedle Street said the UK economy could fall into eight straight quarters of negative growth if current market expectations prove correct. It would be the longest period of uninterrupted decline the nation has seen in around a century.

However, it would be a milder recession than in previous times.

Watch: What is a recession and how do we recognize it?


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