By Chris Dorrell
Business surveys are pointing to a bright next few months for the UK as the economy finally feels the benefit of falling inflation.
Economic output climbed to its highest level since May 2022 in March, according to the BDO Business Trends report, which collects and regroups data from the UK’s main business surveys.
The accountancy’s output index climbed to 102.39, above the 100 no-change mark for the first time since July 2022 and comfortably higher than the 98.67 recorded in February.
The improvement was driven by increased consumer demand, reflecting lower inflation, and supportive fiscal policy.
Kaley Crossthwaite, partner at BDO, said the data illustrates the UK’s “robustness in the face of global economic adversities”.
BDO’s survey comes ahead of the GDP figures for February, which will be published on Friday. Economists expect the economy to have grown 0.1 per cent in February following a 0.2 per cent expansion in January.
Construction is likely to have been hit hard by the unusually wet weather in February, but this will be offset by the continuing recovery in the manufacturing sector.
If the figures come in-line with expectations, it is all but certain that the UK economy has moved out of the shallow recession it faced in the second half of last year.
“Leading indicators such as the activity PMIs, mortgage approvals and car sales all suggest that an economic recovery is underway,” Ashley Webb, assistant economist at Capital Economics noted.
But BDO’s survey suggested that the health of the economy remains fragile. Although output rose, the employment index fell for the ninth consecutive month, the longest sustained fall since the financial crisis.
This put the employment index at its lowest level since June 2013. BDO pinned the blame for the weakness of the labour market on “heightened borrowing costs”.
Business confidence also dipped slightly, the first fall since last November. Crossthwaite suggested that confidence would pick up again once the Bank of England started cutting interest rates.
“All eyes are on the Bank of England, with an interest rate cut looking possible for June, as businesses hold out hope for a further recovery this year,” she said.
