UK firms adapt to recession

Short and medium term business confidence has risen simultaneously for the first time in 13 months........

This is according to the latest Business Trends report by accountants and business advisers BDO Stoy Hayward LLP. The modest rise of BDO’s Output and Optimism indices suggests businesses have accepted the realities of the recession and are adapting their plans to manage against the downturn.

Despite this, the labour market picture remains bleak with BDO’s Employment Index dropping from 94.2 in January to 91.7 in February, suggesting a further 320,000 people will be added to the unemployment register over the next three months. However the increases in both the Output and Optimism Index, which predict economic growth, is a tentative sign that the recession has been factored into confidence and business planning and is in stark contrast to the collapse of these indicators since October.

The result also indicates that businesses are taking swift and decisive action to tackle the challenges of the recession, including halting production or implementing new employment strategies to keep costs down. This tactic is further illustrated in the report which reveals that while there has been a reduction in full time employment figures, part time employment actually rose by 33,000 in October – December 2008.

Peter Hemington, Partner at BDO Stoy Hayward, says: “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’s still too early to say if business confidence has hit rock bottom and we’ve 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.”

The report’s Optimism Index, which measures business confidence two quarters ahead, rose to 90.5 in February from 89.9 in January. Similarly, the Output Index that measures order book strength and short run turnover expectations in the next quarter edged up to 88.3 in February from 88.1 in January 2009 - a 29 year low.

Source: BDO