Soaring inflation plunges optimism in UK economy to lowest level since third lockdown

GALLOPING inflation has sent business confidence in the UK economy tumbling to its lowest ebb since the third Covid lockdown, research has found.

Accountancy firm BDO said its optimism index, which collates several confidence surveys, had fallen to a level last seen in February 2021. It is currently sitting at 94.6, down from 96.3 in September, with anything below 95 indicating a recession is likely.

The firm’s output index also sank deeper into the red, from 93.5 to 93.1.

BDO said the dip was driven by growing concerns about inflation, which hit 10.1pc in September. It listed issues affecting manufacturing and services, including continued disruption to global logistics networks and soaring costs, as well as falling consumer demand because of the cost of living.

In one bright spot, the firm’s employment index, which measures hiring intentions, remained in positive territory, as businesses continue to compete to hire workers. Unemployment remains at a historic low of 3.5pc.

Kaley Crossthwaite, a partner at BDO, said: “A contraction in both optimism and output is a concerning bellwether for firms, as inflation is expected to continue climbing in the run-up to Christmas.

“A weaker currency and drop in consumer spending power will have real and tangible consequences for firms relying on imports or customers in the retail and services sector, alongside the knock-on effects of managing political and economic uncertainty.

“We also know that rising energy costs are a top concern for nearly half of mid-sized businesses this winter as we’re only just beginning to see the impacts of the energy price cap rise.”

She added that firms would be watching Chancellor Jeremy Hunt’s Autumn Statement eagerly, looking for “the support they need as they navigate a tough period ahead”.

BDO’S optimism index is a benchmark incorporating major data sources on business confidence, including those published by the Bank of England, the Office for National Statistics, IHS Markit, the CBI, Eurostat and other analysis, a spokesman said.