Trumping Brexit: Business optimism soars as manufacturing confidence hits 20-month high
The shock Brexit vote and the outcome of the US presidential elections have failed to dent business optimism in the UK, according to a report by BDO.
The accountants’ optimism index, which indicates how firms expect their order books to develop in the next six months, has risen to 103.7 from 102.2 in December.
BDO's latest report also found that Britain's manufacturing confidence has hit a 20-month high. The sector's optimism index has risen to 102.2 from 99.4, passing the 100 mark which indicates growth for the first time since June 2015. Meanwhile, the services optimism also increased from 102.7 to 103.9, a 14-month high.
Read more: Optimism ahead of Brexit for UK manufacturers says CBI
However, sterling’s devaluation could contribute to rising inflation, BDO warned. Its inflation index has increased to 104.5 from 103.8 and the upward trend is set to continue.
The report said: "While currency depreciation makes British exports more price competitive, firms’ input prices have risen sharply, squeezing margins."
Peter Hemington, partner, BDO, said: “The UK economy seems to be remarkably resilient. British businesses are surprisingly confident about the short term, encouraged by the opportunities our cheaper currency and a better-performing global economy have created. These have provided a much-needed short-term boost for our economy, particularly our manufacturers.
Read more: Fears of Brexit hit disappear for UK services despite big costs increases
Hemington warned that the government must do more to ensure the UK stays on the "right economic track".
"The modern industrial strategy could be a step in the right direction. More importantly, simplifying regulation and taxes, and improving our education and training systems are high priorities for businesses in the new economy. And with government borrowing costs still close to all time lows, the opportunity to replace our worn out infrastructure is still an enticing one,” he said.
Meanwhile, a separate study by The Institute of Chartered Accountants in England and Wales (ICAEW) revealed that confidence for this current quarter is still in negative territory at minus 8.7, compared to minus 9.8 in the final quarter of 2016.
However, ICAEW's index found that companies forecast stronger growth in both domestic and export sales than in recent quarters.
The index found that the retail and wholesalers and property sectors saw the largest decline in confidence this quarter following a difficult festive period.
Stephen Ibbotson, ICAEW director of business, said: “Firms will try to pass many of these increases on to their customers, which means that 2017 is likely to be a year of counting the pounds and pennies for consumers following an unsustainable spending spree towards the end of last year. In order for businesses to start the New Year off confidently, the government should resolve the ‘hard Brexit vs soft Brexit’ debate in parliament as quickly as possible and negotiate the most inclusive Brexit deal for business of all shapes and sizes across the UK.”