UK business confidence soars to seven-year high

LONDON, ENGLAND - MAY 19: Waitress carries a plate in view of Tower Bridge at Tavolino Bar & Kitchen on May 19, 2021 in London, England. Although indoor drinking and dining were permitted in England with yesterday's Covid-19 lockdown easing, there remain social distancing rules and restrictions on party size that prevent many restaurants from returning to full capacity. The next phase of reopening, when all limits on social contact are due to be lifted on June 21, is vital to the recovery of the hospitality business. (Photo by Hollie Adams/Getty Images)
The rise, which marked the fourth consecutive month of growth for the index, was largely driven by the services sector, which increased by 10.70 points to reach 110.56 in May. Photo: Hollie Adams/Getty Images)

Business confidence in Britain climbed to its highest level in seven years last month as the coronavirus vaccine rollout programme continued at pace across the UK.

According to the latest Business Trends report from accountancy and business advisory firm BDO, confidence was also boosted by the further easing of restrictions under prime minister Boris Johnson’s roadmap out of lockdown.

The BDO Optimism Index jumped from 99.85 in April to 109.71 in May, significantly above the long-term average of 100. This is the highest it has been since June 2014, when Europe began to emerge from the Eurozone crisis and before Brexit-related uncertainty took hold.

The rise, which marked the fourth consecutive month of growth for the index, was largely driven by the services sector, which increased by 10.70 points to reach 110.56 in May.

This included restaurants, cinemas, and the wider hospitality industry, which has benefitted the most from the latest relaxation of restrictions. Last month’s easing saw people able to meet and dine indoors for the first time in months.

BDO said that the degree of confidence among businesses in the services sector suggested that many believe the government will stick to its roadmap out of lockdown despite concerns over the spread of the Delta strain of the virus.

Read more: Demand for workers rises at fastest pace for more than 23 years

Earlier this week there were reports that UK ministers were considering delaying the final stage of Britain's reopening by two weeks.

Britain is due to end all restrictions on 21 June in the final stage of a reopening plan that began in earnest in April. However, the Financial Times reported that a fallback plan was being discussed by British ministers in case hospitalisations and deaths increase.

Although the latest government data shows that some 39.7 million people have received the first dose of the coronavirus vaccine in the UK, and 26.4 have had their second, the country is still struggling with the variant that was first identified in India.

There are concerns that the rapid spread of the new variant could still overwhelm hospitals and questions remain about the efficacy of vaccines on the new strain.

“I can see nothing in the data at the moment that means we can’t go ahead with step four, or the opening up on June 21, but we’ve got to be so cautious,” Boris Johnson said on Wednesday.

“What we need to work out is to what extent the vaccination programme has protected enough of us, particularly the elderly and vulnerable against a new surge and, there, I’m afraid the data is still ambiguous.”

Watch: Boris Johnson says nothing in data to delay lockdown lift

The improvement in BDO’s manufacturing optimism index was slightly more subdued, rising from 99.79 in April to 102.98 in May. Despite this optimism, rising inflation remains a growing concern as the index edged towards a four-year high, BDO revealed.

The BDO inflation index reached 102.51 in May, up from 101.28 the previous month. The data suggests price pressures are mounting in the UK economy, and are likely to have a tangible impact on everyday consumers.

This has been caused by a combination of a resurgence in demand as restrictions are lifted, as well as supply-side disruptions associated with the pandemic and Brexit.

“The latest figures show that most businesses, buoyed by the success of the vaccine rollout and the further easing of restrictions, have confidence the UK will continue along the government’s roadmap out of lockdown, despite growing concerns over the Delta strain of the virus," said Kaley Crossthwaite, Partner at BDO LLP.

“While this is a much-needed dose of positive news as we head into the summer, rising inflation serves as a sobering reminder of the challenges that remain on the horizon.”

Watch: What is inflation and why is it important?