UK business output hits four-year low as the service sector slumps

Meanwhile, the manufacturing sector has shown signs of growth and entrepreneurs continue to be optimistic in spite of economic downturn

UK business output has now reached the point of contraction following a four-year low, meaning that the economy is now in decline according to a report by BDO LLP.

The Output Index contained in its latest monthly Business Trends Report, which indicates how the UK’s large companies, small businesses and start-ups are expecting their order books to look over the next three months, has dropped to a value of 94.9 in June from 95.4 in May, with the point of contraction sitting at 95.0.

The report, which calculates indices from the results of the UK’s main business surveys, points out that the growth of UK business’ order books has been slowing since the end of summer 2015.

With the UK services sector forming the majority of the country’s economy, the report claims that the country’s economic growth has been stunted primarily by the poor performance recorded in the services industry, which the report suggests to be a result of reduced consumer spending in light of the devalued sterling.

In contrast, the manufacturing sector has been found to show signs of success over the last six months. However, as manufacturing contributes just 15% to the country’s total GDP, the sector’s growth is still below the level needed to balance out the services sector’s slowdown and lift the economy out of decline.

In spite of this, entrepreneurs have remained optimistic about the future, with the report’s Optimism Index rising from 102.8 in May to 102.9 in June.

This result implies that small businesses and start-ups are now expecting an uptake in business following the uncertainty surrounding last month’s snap general election, which led many small businesses to delay expansion and investment plans.

Peter Hemington, partner at BDO LLP, said:

“Since the financial crisis, the UK’s economic recovery has been reliant on consumer spending and a growing services sector.

“To deal with the pressures of rising inflation and to accelerate economic growth, the UK’s monetary policy makers are seriously considering raising interest rates.

“However, given the economy’s clear weakness and the continuing uncertainty we are going to see from Brexit, to raise interest rates at the moment would be a major mistake.”

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