Business confidence has fallen to its lowest level in a year amid growing fears over the impact of inflation.
According to BDO’s index, confidence among companies is now at levels last seen in April 2021, when coronavirus restrictions were just beginning to relax. The index takes a weighted average of the UK’s main business surveys, covering responses from around 4,000 companies.
BDO’s optimism index fell for a second consecutive month in May, dropping by 4.82 points to 101.93. The 100 mark separates expectations for long-term growth from contraction.
The decline was driven by a fall in optimism in the services sector, which has been the hardest hit by falling consumer spending in light of the squeeze on household budgets. The index for optimism in services fell by 5.35 points to 100.95 in May. Output also fell to its lowest level in more than a year, dropping by 1.86 points in May to 100.53.
The figures reflect official data on output published by the Office for National Statistics yesterday, which showed that the UK economy contracted for the second consecutive month in April, raising fears of an outright fall in output in the second quarter.
The Bank of England is expected to raise interest rates by 0.25 percentage points at its next meeting on Thursday. Inflation, which hit a 40-year high of 9% in April, will continue to climb above 10%, according to the central bank’s latest set of forecasts published in May.
