Stark warning over new year business confidence as optimism falls flat

Business optimism is expected to stagnate over the coming months as firms grapple with the challenges posed by the impact of the Omicron variant.

Restrictions imposed to combat the Omicron variant have knocked business confidence.

The latest Business Trends report from accountancy and business advisory firm BDO showed both optimism and output growth across the UK fell in December as the variant began to take hold and fresh restrictions were imposed.

The report’s optimism index slipped by 0.46 points to 103.81, and with supply chain challenges likely to continue into 2022, BDO warned that optimism will “at the very least” stagnate over the next quarter, with the potential for significant downward pressures if further restrictions are introduced.

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The new strain of the virus has also de-railed the progress made by the report’s output index, which fell by 2.66 points in December to 108.18 following a four-month high in November.

The services output Index was the hardest hit, falling 3.2 points to 109.76 in December - the largest drop since August - as businesses contend with cancellations, staffing and supply chain issues. Despite these headwinds, the index remains above the 95-level which indicates growth, highlighting the extent of economic recovery in the past year.

Despite the difficult outlook faced by businesses, the report’s employment index crept up by 0.99 points in December to reach 109.08, the highest reading since before the pandemic in March 2020.

BDO said the reading underline the strength of the UK’s labour market as strong hiring intentions amongst employers are driven by competition for talent, particularly in the services and hospitality sectors.

Kaley Crossthwaite, partner at BDO, said: “Ongoing uncertainty around Omicron is providing a further blow to UK businesses which have already battled a string of supply chain issues, the threat of further Covid restrictions and inflationary pressures this past year.

“While the health of the jobs market continues to be a glimmer of hope for employees and the government, it also demonstrates the difficulties that businesses are having recruiting and retaining staff.”

The BDO surveys carried out for the report cover over 4,000 different respondents from companies employing approximately five million employees across many industry sectors.

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