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Business optimism improving

  Confidence is beginning to return to UK and mainland European businesses but it has still not reached levels seen in the autumn last year, according to a quarterly business survey released on Tuesday.

The UK and Euro Area Business Trends survey, conducted by British accountancy firm BDO Stoy Hayward, showed a rise in its BDO Optimism index in both regions, with optimism in the UK starting to catch up with that of the euro zone.

The survey, which is a poll of polls pulling together previous research and covering 11,000 business people across Europe, showed that its UK optimism index rose fastest, but still ended below the euro zone level.

In the UK it grew from 89.9 in January to 91.2 in April and in the euro zone it rose from 92 to 92.6 in the same period. However the optimism level has been higher in the UK, meaning it has fallen further.

The index remained above 100 in the UK from July 2005 until July 2008 and above 97 in Europe during the same period. The current figures are still well below their respective levels of October 2008.

The survey report also predicted significant increases in unemployment in both the UK and the euro zone for the next quarter and beyond, pointing out that unemployment tends to lag GDP movements by between three and nine months.

It also said that while deflation was a growing concern for businesses in Europe, UK businesses see deflation risks receding, indicating that the Bank’s policy of printing money might be proving effective.

Its inflation index, where 100 means a stable level, rose from 86.6 in January to 91.5 in April, whereas in the euro zone it fell from 97.1 in January to an all-time-low of 88.4 in April.

“Despite being greeted with skepticism, quantitative easing looks to have paid off so far for the Bank of England. The European Central Bank now needs to make some bold decisions of its own if it is to stave off the threat of deflation in the euro zone,” said Peter Hemington, partner at BDO Stoy Hayward.

The European Central Bank is due to announce its latest interest rate decision on Thursday, May 7. (Reuters)