Business confidence grows in November but Omicron variant threatens to de-rail recovery

Business optimism across the UK increased for a second consecutive month in November, reaching its highest level since July this year, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

The BDO Optimism Index rose by 1.49 points to reach 104.27, its largest increase since June this year. The Index now sits above the 100-point mark, which represents the long-term average level of business optimism in the UK, however the Omicron variant looms large, threatening to halt renewed positive sentiment

The report credits the rise in optimism to an earlier than usual increase in activity ahead of the festive period, as people and businesses make purchases ahead of Christmas to mitigate any possible supply chain disruption.

However, the rapidly changing picture regarding the Omicron variant threatens to derail bolstered business confidence in the lead up to Christmas. With the Government announcing new Plan B restrictions and consumers nervous about the new variant, this rise in optimism could be short-lived.

Elsewhere in the report, BDO’s Employment Index shows a marked improvement despite the termination of the furlough scheme in September, reaching 108.09. The 0.44-point increase between October and November suggests that a rise in unemployment resulting from the end to furlough support has been less acute than commentators first anticipated.

According to research completed by the Centre for Economics and Business Research (Cebr) as part of the Business Trends report, the UK’s unemployment rate is now expected to peak at just 4.5% this quarter, before falling next year. This will take unemployment in the UK below its pre-pandemic level by the end of 2022.

Commenting on the results Ed Dwan, head of BDO in the North West, said: “For UK businesses, pandemic recovery feels like one step forward followed by another step back. From supply chain disruption to a new Covid-19 variant, it’s clear that businesses aren’t out of the woods just yet.

“A rise in both the Optimism and Employment Indices for November is a significant sign of growing business confidence and a positive bounce back in the labour market following the end to furlough. But while all eyes had been on the Bank of England ahead of a potential rise in interest rates, an increase now seems far less likely in this period of renewed uncertainty.”