Sunday 11 July 2021 10:00 pm

UK business confidence soars to highest level since 2005

UK business confidence has surged to its highest level since 2005 as companies look ahead to the final lifting of lockdown restrictions later this month.

The latest business trends report from BDO showed the optimism index moved 2.74 points from 109.71 in May to 112.45 in June, marking the fifth consecutive month of growth and its highest point since records began in 2005.

The index now stands well above the average level of 100.

The rise was driven primarily by the manufacturing optimism index, which rose from 102.98 to 113.22 in June. 

This reflects growing global economic confidence as the easing of lockdown measures and rollout of vaccines begins to pay off.

The rise in the services optimism index was more muted this month, increasing by 1.79 points to 112.35. 

However, this is likely to reflect that little has changed for business such as restaurants, cinemas and the wider hospitality industry over the last month in terms of lockdown restrictions.

The BDO employment index also increased for the second consecutive month in June, reaching a six-month high of 108.01. This compares to a reading of 107.22 in May. 

However, the inflation index reached a four-year high of 103.83 in June, up from 102.51 in May. 

Disruptions to global supply chains caused by factors such as Brexit and the blocking of the Suez Canal, combined with increased demand from households looking to spend savings accumulated during lockdown and higher wages due to labour shortages, have driven prices higher.

“Businesses are clearly looking forward to the lifting of restrictions on the 19 July,” said Kaley Crossthwaite, partner at BDO.

“After a grueling year of unpredictable change, the ending of restrictions is timely, although rising Covid-19 cases still leave an element of uncertainty. The summer spending surge that could follow will provide a huge boost to the economy, and businesses will be hopeful that the tide is turning over the long term. 

“While businesses are feeling optimistic, rising inflation may be a sting in the tail. The hope is that factors pushing up inflation – shortages caused by supply chain disruption and increased demand caused by the lifting of lockdown restrictions – are short term. However, businesses should keep a close eye on this in case it becomes a longer-term prognosis.”