Business output shrinks to four-year low

Output among UK firms is to decrease, underlining the possibility of a weak second quarter, according to new data published today .

BDOs Martin Gill urges against interest-rate jump. Picture: Rob McDougall
BDOs Martin Gill urges against interest-rate jump. Picture: Rob McDougall

Accountant and business adviser BDO said its output index, which shows how order books are expected to develop over the next three months, fell to 94.9 in June from 95.4 in May, therefore dropping to the point of contraction.

BDO said the slump leaves output at a new four-year low and underscores the possibility of a weak second quarter following a positive first three months of the year for the Scottish economy.

Sign up to our daily newsletter

The services sector’s poor performance, the report said, continues to restrict economic growth. While manufacturing has shown welcome signs of growth over the last six months, the output index for that sector dropped 0.1 points in June to 97.6, unable to offset the slowdown in services.

However, there was some cause for cheer with BDO’s optimism index, indicating how firms expect their order books to develop in the next six months, suggesting a “much brighter future”. It increased to 102.9 in June from 102.8 in May, with the eight-point difference between the optimism and output indices the greatest ever on record.

Martin Gill, partner and head of BDO in Scotland, cautioned against a rise in interest rates, after the services sector and consumer spending saw performance drop over the past two years. Raising rates now would be “a major mistake,” he said, “given the economy’s clear weakness and the continuing uncertainty we are going to see from Brexit”.