Business confidence creeps up

BDO Stoy Hayward headquarters

UK firms' business confidence for both the short and medium term has risen for the first time in over a year as companies learn to cope with the recession, research has found.

The Business Trends report from auditor BDO Stoy Hayward finds that the UK's Optimism Index, which measure business confidence two quarters ahead, rose from 89.9 in January to 90.5 last month. This is still some way below the neutral mark of 100, which the Index has fallen short of since August.

BDO's Output Index measures the strength of order books and turnover expectations for the coming quarter. It fell to 88.1 in January, its lowest point in almost 30 years, but rebounded a little to 88.3 last month. February marked the first time both Indices have risen simultaneously since January 2008.

BDO partner Peter Hemington said: "Optimism remains low and businesses expect the economy to continue to contract, but companies are now adapting their business models for an uncertain future.

"It is still too early to say if business confidence has hit rock bottom and we have already seen a number of false dawns, but this month’s modest increases are encouraging. We must watch carefully to see if this is the start of an upward trend.”

Despite the increases in business confidence the UK job market continues to deteriorate, with BDO's Employment Index falling two and half points in February to 91.7. The sharpness of this decline could mean as many as 320,000 additional people find themselves out of work over the next three months.

The report as a whole finds that UK firms are now comfortable acting quickly and decisively to combat the recession through changes in production and employment strategy. While full-time employment continues to plummet, part-time employment rose 33,000 between October and December last year.