Businesses approach the new year with caution as Omicron curtails optimism
Businesses approach the new year with caution as Omicron curtails optimism
- BDO’s Output and Optimism indices fell in December as companies felt the impact of Omicron
- Despite uncertainties around restrictions, employment levels have reached their highest reading since pre-covid in March 2020
Business optimism and output growth across the UK fell in December, reflecting a cooling in economic activity as firms grapple with the effects of the Omicron COVID-19 variant, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.
The BDO Optimism Index slipped by 0.46 points to 103.81, driven largely by the emergence of the Omicron variant and the implementation of Plan B restrictions. The index now reflects a more cautious outlook from businesses as they enter the new year.
With supply chain challenges also likely to continue into 2022, it’s expected that optimism will at the very least stagnate over the next quarter, with the potential for significant downward pressures if further covid restrictions are introduced.
The new strain of the virus has also de-railed the progress made by the Output Index, which fell by 2.66 points in December to 108.18 following a four-month high in November.
The Services Output Index has been the hardest hit, falling 3.2 points to 109.76 in December - the largest drop since August - as businesses contend with cancellations, staffing and supply chain issues. Despite these headwinds, the Index remains above the 95-level which indicates growth, showcasing the extent of economic recovery in the past year.
Despite the difficult outlook faced by businesses, BDO’s Employment Index crept up by 0.99 points in December to reach 109.08, the highest reading since before the pandemic in March 2020.
This peak highlights the current strength of the UK’s labour market as strong hiring intentions amongst employers are driven by competition for talent, particularly in the services and hospitality sectors.
Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “Ongoing uncertainty around Omicron is providing a further blow to UK businesses which have already battled a string of supply chain issues, the threat of further covid restrictions and inflationary pressures this past year.
“While the health of the jobs market continues to be a glimmer of hope for employees and the Government, it also demonstrates the difficulties that businesses are having recruiting and retaining staff.”
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.
|
|
December 2021 (Figures for this report) |
November 2021 |
October 2021 |
December 2020 |
|
BDO Output Index |
108.18 |
110.84 |
105.29 |
82.00 |
|
BDO Optimism Index |
103.81 |
104.27 |
102.78 |
86.96 |
|
BDO Inflation Index |
108.52 |
108.93 |
107.00 |
92.20 |
|
BDO Employment Index |
109.08 |
108.09 |
107.65 |
104.96 |
Note to editors
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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.
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bdo@headlandconsultancy.com
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