Robust rise in confidence drives 2.5 per cent growth in early 2010, says BDO LLP

Report confirms biggest spike in UK output since early ‘90s

Optimism and output have reached their highest levels for almost two years, leading to predictions of GDP growth of 2.5 per cent in Q4 and Q1 , according to the latest Business Trends report by accountants and business advisers BDO LLP. After a two month plateau in confidence, this month’s Business Trends output index increased significantly in December to 99.7 – up from 96.3 in November. This is the largest rise since the end of the early ‘90s recession and suggests a strong bounce over the next three months. The rise is supported by robust confidence levels, as the optimism index rose to 100.5, from 96.3 in November. Taken together, the indices are consistent with annualised GDP growth of around 2.5 per cent in the fourth quarter of 2009 and the first quarter of 2010. The driving force behind the rise will be reduced de-stocking and a revival in restocking. The decline in stock levels reduced gross domestic product by £4.6billion in the third quarter, but increased confidence is likely to drive production to replace depleted stock. Kim Hayward, Lead Partner for BDO LLP in Southampton commented: “Back in July BDO predicted a saxophone-shaped recovery. The marked increase in output and optimism suggests we are now on the brink of a sharp upturn (see diagram). However, the saxophone might hit a flat note. Restrained lending, a likely increase in taxes and the possible effect of political uncertainty on sterling could all hamper performance later on in the year. “This means renewed optimism should be paired with a sense of caution. Credit conditions remain difficult, so businesses must seize opportunities to secure funding and monitor their cash-flow closely - we’re not out of the woods yet.” - Ends -

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