Short-term business prospects grow, but long-term concerns remain

By Natasha Roberts

Date: Monday 11 Jun 2012

Short-term business prospects have improved, with output expectations reaching a 12-month high, according to BDO, an accountants and businesses advisor.

However, it's not all good news as longer-term growth prospects have been dampened by the tempestuous Eurozone crisis, which has undermined UK business confidence.

BDO's Output Index, which aims to predict gross domestic product one quarter in advance by tracking the experiences of UK business persons, increased to 96.7 in May, up from 95.8 the previous month. The index has remained above the growth marker of 95.0 since March this year, indicating that the UK economy will see growth from mid-2012.

Peter Hemington, a Partner at BDO, said: “Given that half the UK’s export goods go to the eurozone, it’s hardly surprising that the ongoing turbulence there is denting longer-term growth prospects here. The biggest issue for UK businesses at the moment is that the strength of the pound against the euro has made UK exports much more expensive, significantly denting export and growth prospects.

“While the UK economy is currently doing 'OK, considering', it's clear that UK business people are worried by the eurozone crisis and are scaling back plans for hiring and investing. This massively threatens the already fragile growth prospects for the economy.

"The government's plans to shrink current spending by the State remain a necessity, but a fantastic opportunity is being missed to build high quality infrastructure cheaply, taking advantage of the very low borrowing rates that the government can source currently. More energy and imagination than we have seen so far is required to access this opportunity, with the key additional benefit this would bring in terms of stimulating growth and employment. More of both are sorely needed at the moment."

Casting more gloom over the situation, the BDO's Optimism Index, which measures business performance two quarters ahead, has fallen for the third consecutive month from 98.0 to 95.5 between February and May, indicating a tail off of growth later this year.

In addition, the BDO's Employment Index also took a hit, falling to 94.9 in May from a previous reading of 95.5, suggesting that employment will decline this year also.

NR

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