Second lockdown drives business output to lowest

The scale of the impact of England’s second national lockdown was laid bare in November as business output fell to its lowest level since June, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

Confidence also fell despite positive vaccine news as the prospect of long-term winter restrictions loomed large.

The BDO Output Index, which provides the most comprehensive snapshot of business output by weighting macroeconomic data from the UK’s main business surveys, fell sharply by 8.03 points in November, plummeting the index to 69.06 points - its lowest level in five months and well below the 95-mark which indicates growth. The figure paints a stark picture of the impact of lockdowns on businesses, as England enters another period of tiered regional restrictions.

The services sector drove the decline, falling 9.13 points as many businesses across industries such as retail, hospitality and leisure were forced to effectively shut down. Manufacturing proved resilient by contrast, benefiting in part from Brexit stockpiling, which saw the Manufacturing Output Index rise by 0.64 points to 90.34 in November.

While the overall fall in output is significant, the rate of decline was not as sharp as it had been during the first national lockdown in April, as many businesses reverted to now-familiar remote working patterns.

Elsewhere in the report, the BDO Optimism Index declined for a second consecutive month, from 88.94 points in October to 86.70 points in November. This reflected a corresponding fall in services sector confidence, which dropped 2.55 points and now sits at a four-month low of 87.02.  

Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “The services sector has been particularly badly bruised by the second lockdown, and it’s clear that businesses see a long and difficult road to recovery ahead.

“While today’s figures make for grim reading, the extent of the economic contraction in November was less severe than that of the first national lockdown, as many businesses have successfully reverted to flexible working. Ongoing tiered restrictions will limit an immediate recovery, but the prospect of a mass vaccination programme brings real hope on the horizon for Q1 2021.”

ENDS

Overview of the BDO indices:

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.

Note to editors 

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The BDO global network provides business advisory services in 167 countries, with 88,000 people working out of 1,800 offices worldwide. It has revenues of $9.6bn. 

Methodological notes

The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Markit/CIPS Manufacturing and Services PMI data

Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles.

Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.