Eurozone crisis leaves UK companies treading water

The survey indicates that business leaders are cutting back investment plans in response to the uncertainty in Europe, which is bad news for the UK’s economy.

BDO’s Output Index climbed to 96.7 in May from 95.8 in April. This is the third consecutive month that the index has climbed above the 95.0 mark, which indicates growth, and stands at the highest level seen for a year.

However, BDO’s Optimism Index has dropped for the third consecutive month, from a peak of 98.0 in February to 95.5 in May.

The index, which measures business performance two quarters ahead, suggests that UK businesses expect growth to tail off later in 2012.

Ian Beaumont, partner and head of BDO in Leeds, said: “Given that half our export goods go to the euro zone, it’s hardly surprising that the ongoing turbulence there is denting longer-term growth prospects here.

“The biggest issue for businesses at the moment is that the strength of the pound against the euro has made UK exports much more expensive, significantly denting export and growth prospects.”

Against the backdrop of longer term uncertainty, this month BDO’s Employment Index has also declined to 94.9 from 95.5. Its return to below the 95 level points to continued weakness in the labour market, indicating that employment may fall in 2012.

Mr Beaumont said: “While the UK economy is currently doing ‘OK, considering’, it’s clear that business leaders are worried by the eurozone crisis and are scaling back plans for hiring and investing. This massively threatens the already fragile growth prospects for the economy.

“The Government’s plans to shrink current spending by the state remain a necessity, but a fantastic opportunity is being missed to build high quality infrastructure cheaply, taking advantage of the very low borrowing rates that the Government can currently source. More energy and imagination than we have seen so far is required to access this opportunity, with the key additional benefit this would bring in terms of stimulating growth and employment. More of both are sorely needed at the moment.” 

The BDO Monthly Business Trends Indices are prepared on behalf of BDO by the centre for economics and business research, an independent economics consultancy.