Cost-of-living crisis drags business optimism to its lowest point in more than a year
Cost-of-living crisis drags business optimism to its lowest point in more than a year
- BDO’s Optimism Index plummets to lowest point in 13 months as businesses tackle the cost-of-living crisis
- Waning sentiment suggests businesses view inflationary pressures and supply chain disruption as a long-term threat
- Despite this, the employment market remains resilient reaching a more than three-year high
Business optimism has fallen to its lowest level since April 2021 as firms grapple with mounting economic headwinds, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.
The worsening cost-of-living crisis has been compounded by skyrocketing inflation and disruptions to global supply chains, weighing the BDO Optimism Index down by 4.82 points to 101.93. May marked the index’s second consecutive month of decline, pushing it to its lowest point since April 2021, when coronavirus restrictions were being relaxed.
This downfall was primarily driven by the services sector, which has felt the full force of consumers tightening their spending on non-essentials. BDO’s Services Optimism Index fell by 5.35 points to 100.95 in May and now sits just above the 100-level which denotes long-term average growth.
The cautious outlook from businesses is consistent with output declines, as mounting economic challenges place downward pressure on manufacturing and services sector output. The BDO Output Index fell by 1.86 points in May to 100.53 - its lowest reading in 14 months.
Despite the downturn in business confidence, employment levels are bucking the trend, as evidenced in BDO’s Employment Index which reached a more than three-year high in May. Rising 0.89 points to 113.89, the index now firmly exceeds its pre-pandemic level, recording its highest reading since March 2019.
The labour market has been bolstered by a low unemployment rate, which dropped in Q1 to its lowest reading in 50 years. However, employment is set to weaken in the medium term, reflecting the expected economic slowdown.
Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy. Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”
ENDS
Overview of the BDO indices:
An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.
|
|
May 2022 (Figures for this report) |
April 2022 |
March 2022 |
May 2021 |
|
BDO Optimism Index |
101.93 |
106.75 |
107.49 |
109.71 |
|
BDO Output Index |
100.53 |
102.39 |
109.48 |
149.21 |
|
BDO Inflation Index |
116.25 |
115.26 |
110.97 |
102.51 |
|
BDO Employment Index |
113.89 |
113.00 |
112.74 |
105.23 |
Note to editors
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy.
We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.
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BDO LLP operates in 18 offices across the UK, employing 6,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
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Methodological Notes
The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.
The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Markit/CIPS Manufacturing and Services PMI data
Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.
The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles.
Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.
The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.
Contacts
Ellie Chatterton
07904 050 302
bdo@headlandconsultancy.com
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media@bdo.co.uk