Business optimism suffers 'unprecedented' drop amid Covid-19

Business optimism across the UK fell by its largest-ever margin in March, with the economic impact of Covid-19 looking set to be “widespread and severe,” according to a new report.

BDO’s latest optimism index has fallen 21.69 points after a strong increase in February. Picture: John Devlin.

Accountancy and business advisory firm BDO, whose 1,800 global offices include Edinburgh and Glasgow, said in its latest BDO Business Trends report that the scale and speed of the decline is “unprecedented” for a single month over the past 15 years, and similar in magnitude to the cumulative falls in 2008.

The optimism index, which provides the “most comprehensive” snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys, fell by 21.69 points in March to 79.95.

The drop followed a strong rise in February, “as the political and economic uncertainty of 2019 began to subside enabling the UK economy to find its feet,” BDO commented.

Resilience in the employment market also saw a sharp decline, with BDO’s employment index falling by 26.89 points to 85.97. The drop, the first since November 2012, put the brakes on the steady growth in the UK job market that has been seen since the financial crash, the accountancy firm added.

BDO, which says its clients are Britain’s “economic engine – ambitious, entrepreneurially-spirited and high-growth businesses,” also noted the increase of 950,000 claims for universal credit in the final two weeks of March. “The rise suggests that the unemployment rate could be ready to increase from 3.9 per cent in the three months to January to more than 6 per cent as soon as next month,” BDO stated.

Major threat

Kaley Crossthwaite, partner at BDO, said: “Covid-19 represents a significant threat on many fronts. It is only in the coming weeks and months, as the immediate public health threat passes, that the true scale of the economic impact will be clear, but these early indicators suggest it will be widespread and severe.

“The speed of the decline across all indices reveals how the economic crash caused by Covid-19 is different to the 2008 financial crisis when the fall was spread across multiple months. Businesses have had to act nimbly to make decisions in an unclear timeframe about how to adapt and survive a severe economic shock.”

Meanwhile, the third British Chambers of Commerce Coronavirus Business Impact Tracker has revealed that two thirds of businesses responding to the survey have now furloughed a proportion of their workforce, and are awaiting funds from the government’s Job Retention Scheme to enable them to pay staff. Business’ cash flow remained an “urgent” concern, with more than half of firms reporting cash in reserve of three months or less.

The reports came as the Office for Budget Responsibility warned that the UK economy could fall off a cliff edge, potentially plunging 35 per cent between April and July – but should recover by the end of the year.

A message from the Editor:

Thank you for reading this story on our website. While I have your attention, I also have an important request to make of you.With the coronavirus lockdown having a major impact on many of our advertisers - and consequently the revenue we receive - we are more reliant than ever on you taking out a digital subscription.Subscribe to scotsman.com and enjoy unlimited access to Scottish news and information online and on our app. With a digital subscription, you can read more than five articles, see fewer ads, enjoy faster load times, and get access to exclusive newsletters and content. Visit www.scotsman.com/subscriptions now to sign up.

Our journalism costs money and we rely on advertising, print and digital revenues to help to support them. By supporting us, we are able to support you in providing trusted, fact-checked content for this website.

Frank O'Donnell

Editorial Director