Business confidence has crashed to the lowest point since 2012, and the economy is only growing because firms are stockpiling ahead of Brexit, according to a key sentiment indicator.
The BDO optimism index, which charts how businesses expect output to develop in the next three to six months, fell faster in March that at any time since the bleakest days in the aftermath of the Lehman Brothers collapse in 2008.
The figures suggest that the UK economy could struggle to post any positive growth in 2019, BDO said.
The fall in confidence has been led by the previously robust services sector. “In absolute terms, sentiment is now weaker than its previous low point after the UK’s vote to leave the EU in 2016,” the BDO said.
“The services sector, which comprises around 80% of UK GDP, drove the overall decline in confidence with the sector index falling by a dramatic 4.15 points to 95.13 in March.”
BDO’s separate output index, which measures UK business output growth, reported a slight improvement, suggesting that the economy is performing better than expected given the challenges around Brexit and ongoing concerns about global trade.
Much of the growth in the economy is down to stockpiling, according to BDO, which it said was at an all-time high.
Peter Hemington of BDO said: “Continued uncertainty about Brexit has led to a severe worsening of expectations about our near economic future. What we’re now seeing is a sudden realisation that a no-deal Brexit is both a real and imminent possibility.
“With optimism at levels last seen when we just avoided double-dip recession in 2012, UK businesses expect a zero-growth economy as the backdrop to their plans. This matters, because worried businesses don’t hire or invest, creating the conditions for a marked downturn.”
But he added that if a cliff-edge Brexit is avoided, business could bounce back swiftly. “Looking on the bright side, most businesses are not unhappy with current trading. If the fear of no deal can be lifted, we should hope for a quick return of confidence, and perhaps even a “no-deal averted” bounce in the economy. Let’s hope our politicians can deliver this.”
This week economists are braced for official UK output figures for February which are expected to show that the economy has slowed to a halt. Experts are forecasting that growth will fall to zero compared to an unexpectedly positive 0.5% in January.
At the weekend UK manufacturers urged the prime minister to revoke article 50 if she cannot secure a Brexit agreement this week.
In an open letter to Theresa May and Labour leader Jeremy Cobyn, trade body Make UK said a no-deal Brexit would be “disastrous for the majority of UK manufacturers and the livelihoods of the millions of people they employ and their families”.