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Businesses approach the new year with caution as omicron curtails optimism

Business optimism and output growth across the UK fell in December, reflecting a cooling in economic activity as firms grapple with the effects of the omicron COVID-19 variant, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

Businesses approach the new year with caution as omicron curtails optimism
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The BDO Optimism Index slipped by 0.46 points to 103.81, driven largely by the emergence of the omicron variant and the implementation of Plan B restrictions. The index now reflects a more cautious outlook from businesses as they enter the new year. 

With supply chain challenges also likely to continue into 2022, it’s expected that optimism will at the very least stagnate over the next quarter, with the potential for significant downward pressures if further COVID restrictions are introduced.

The new strain of the virus has also derailed the progress made by the Output Index, which fell by 2.66 points in December to 108.18 following a four-month high in November.

The Services Output Index has been the hardest hit, falling 3.2 points to 109.76 in December – the largest drop since August – as businesses contend with cancellations, staffing and supply chain issues. Despite these headwinds, the index remains above the 95 level that indicates growth, showcasing the extent of economic recovery in the past year.

Despite the difficult outlook faced by businesses, BDO’s Employment Index crept up by 0.99 points in December to reach 109.08, the highest reading since before the pandemic in March 2020.

This peak highlights the current strength of the UK’s labour market as strong hiring intentions among employers are driven by competition for talent, particularly in the services and hospitality sectors. 

“Ongoing uncertainty around Omicron is providing a further blow to UK businesses which have already battled a string of supply chain issues, the threat of further covid restrictions and inflationary pressures this past year,” Kaley Crossthwaite, partner at BDO LLP, said.

“While the health of the jobs market continues to be a glimmer of hope for employees and the Government, it also demonstrates the difficulties that businesses are having recruiting and retaining staff.”

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