Order book strength is growing, according to new business trends report

Peter Hemington, Partner, BDO LLP

UK businesses are experiencing strong order books, driving an expected increase in UK GDP growth in early 2018, according to the latest Business Trends Report by accountants and business advisors BDO.

The organisation’s Output Index, which tracks current order books and is an indicator of GDP growth over the next three months, increased to 99.63 from 98.45 and is now just below the 100 level. This suggests that the UK can expect GDP growth of around its long term trend of 2% in the early part of 2018. This is the first time that the Index has increased since July 2017 and indicates that British businesses have had a strong start to the year, despite mounting uncertainty about Brexit.

The rise in the index has been driven primarily by the services sector, which accounts for the majority of UK GDP. The services sub-index climbed to 99.50 in January from 98.21 the previous month. The sector’s improving performance can be linked to the pickup in the global economy and better than expected consumer spending in the UK.

BDO’s Manufacturing Output sub-index has also increased to 100.67 from 100.33, climbing further above the long-term trend. UK manufacturing continues to benefit from increasing overseas demand, partly due to the cheaper pound.

Record high employment levels look set to continue early in the first half of 2018. BDO’s Employment Index, which indicated firms’ hiring intentions, recovered from a temporary fall in recent months, rising to 111.55 from 111.26, and remains well above the long-term trend.

However, while output and employment are up, further increases in prices could also be on the horizon for UK consumers. BDO’s Inflation Index increased to 101.15 from 99.85 and now sits above the long-term trend. The increase has been driven by rising input costs for businesses which will likely be passed on to consumers later this year.

BDO partner Peter Hemington said: “British businesses have made a strong start to 2018 despite the ongoing uncertainty about our nation’s future outside of the EU. However, if the government continues to stall on providing a clear Brexit strategy for businesses, the performance of UK firms will suffer.

“We need the government to align quickly and communicate its Brexit plan. It is crucial so that UK businesses can make informed investments to best prepare for the future.”