News: Euro zone crisis casts dark shadow over UK

Mon, 11 Jun 12

The UKs short-term business prospects have improved, with the consensus on current trading reaching a 12-month high.

However, the euro zone crisis has cast a dark shadow over longer-term growth prospects by undermining UK business confidence, according to the latest Business Trends report by accountants and business advisers BDO LLP.

BDOs Output Index, which reflects the current experience of UK business people and therefore predicts GDP one quarter ahead, climbed to 96.7 in May from 95.8 in April. This is the third consecutive month that the index has climbed above the 95.0 mark that indicates growth, and stands at the highest level seen for a year. This suggests that the UK will experience growth from the middle of 2012.

Conversely, BDOs Optimism Index has dropped for the third consecutive month, from a peak of 98.0 in February to 95.5 in May. The index measures business performance two quarters ahead and suggests that UK businesses expect growth to tail off later in 2012.

Peter Hemington, Partner, BDO LLP said: "Given that half the UKs export goods go to the euro zone, its 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."

Against the backdrop of longer term uncertainty, this month BDOs Employment Index has also declined, to 94.9 from 95.5 previously. Its return to below the 95 level points to continued weakness in the labour market, indicating that employment may fall in 2012.

Hemington said: "While the UK economy is currently doing 'OK, considering', it's clear that UK business people are worried by the euro zone 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."

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