Services leads way in boosting UK economy – BDO

The UK economy is expected to grow on the back of service sector growth, despite continuing uncertainty over the UK government’s Brexit plan, according to a new index by BDO.

David Sapsted

12 February 2018

A resurgence in service sector orders will result in an acceleration in the UK economy this year, according to an index from global accountancy and business services firm BDO.

GDP growth in UK expected to continue

The index, which tracks surveys by such bodies as the Bank of England and Confederation of British Industry, suggests GDP growth of around two per cent in the first quarter of the year, thanks to the services pick-up, growth in the global economy and better than expected consumer spending.BDO’s output index increased from 98.45 in December to 99.63 in January in an index where 100 represents the long-term average growth rate.Although economists are predicting GDP growth of 1.4 per cent through 2018, BDO said recent data had provided grounds for optimism with global growth benefiting the services sector, which accounts for more than three-quarters of the UK’s economy.Additionally, manufacturing output has been growing at levels above the long-term average, helped in part by the fall in the value of sterling, while consumer spending has remained stronger than expected even though inflation has been outpacing wage growth for some time.

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On-going Brexit uncertainty

Peter Hemington, a partner at BDO, said, “British businesses have made a strong start to 2018 despite the on-going uncertainty about our nation’s future outside of the EU. However, if the government continues to stall on providing a clear Brexit strategy for businesses, the performance of UK firms will suffer.”“We need the government to align quickly and communicate its Brexit plan. It is crucial so that UK businesses can make informed investments to best prepare for the future.”The report said, “Underlying the climb in the Output Index were improvements in both the services and the manufacturing output measures. The Service Output Index gained 1.29 points and now stands at 99.50. Meanwhile, the Manufacturing Output Index also improved, climbing 0.34 points to 100.67.“This comes after official data showed that the UK economy grew more quickly than anticipated in the final quarter of the year. Services output expanded by 0.6 per cent over the quarter, while manufacturing grew 1.3 per cent.“The BDO Optimism Index stood at 102.09 in January, marginally down from 102.15 in December. Underlying the decline was a sharp fall in manufacturing optimism, following the climb of the pound seen since the start of 2018.“The BDO Inflation Index increased 1.30 points to 101.15 in January – its highest value since mid 2017. “Though the consumer inflation measure fell, the Input Inflation Index rose 2.92 points to 101.22 in January. International oil prices have climbed since the major OPEC oil-producing nations, and Russia, cut production.“The Employment Index continued to strengthen this month, climbing 0.29 points to 111.55. Official data show that the labour market added 102,000 jobs in the three months to November 2017. The employment rate stood at 75.3 per cent over the period – its joint highest ever rate. The pick up in the Employment Index this month suggests that future official releases may show the labour market remaining robust.”

Read more about the future of UK business in the Winter issue of our magazine

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