UK business optimistic
UK businesses are at their most optimistic since 1997 and likely to prosper over the coming months, according to the latest industry survey.
The BDO Stoy Hayward optimism index, which is viewed as a leading indicator of GDP growth increased in January to 102.5, up from 102.2 in October.
It appears that UK companies are hoping to benefit from increasing public spending, strong consumer confidence and healthy overseas markets this year.
However, the survey also warns that rising inflation and possible higher interest rates could hit the UK economy later in the year.
Though the Bank of England has recently kept rates on hold, commentators are split over whether the next movement will be upwards or down.
“The UK economy is looking strong going into the general election but businesses need to prepare themselves for a jolt ahead as the Bank of England reacts to growth and inflationary pressures,” said Peter Hemington of BDO.
“Growth will probably slow by the end of 2005 and it is likely that we will see higher interest rates or a sharp drop in demand for products and services.”
A separate study from the Institute of Directors (IoD) also concludes that business optimism is increasing. However, it reports that optimism is still below the level seen a year ago.
It also suggests that confidence is higher in the service sector than in manufacturing.
Chief economist Graeme Leach, said: “The latest survey is surprisingly upbeat. Company performance and optimism is very strong in the service sector. Unfortunately, the manufacturing sector still appears to be falling behind the rest of the economy.”
Specifically, the NOP survey of IoD members found that 84 per cent believed their company was performing well, with only two per cent believing the company is performing badly.
Mr Leach added: “IoD members are far more confident about the outlook for their own companies than for the UK economy. Remember the Chancellor is forecasting 3 per cent to 3.5 per cent GDP growth this year, but a huge 81 per cent of IoD members think that GDP growth will be 2.4 per cent or less.”
