UK output sinks alongside business confidence

A new study has suggested that lockdown restrictions in January caused UK business output to fall at a rate not seen since April 2020. However, economic activity has been significantly higher than that point, with businesses having adapted to the current restrictions.

Output refers to the total production of goods and services of a whole country over a given period – its gross domestic product. The term may refer to all the work, energy, goods, or services produced by an individual, company, factory or machine. According to the BDO Output Index, which provides a comprehensive snapshot of business output by weighting macroeconomic data from the UK’s main business surveys, the nation’s output sank to a seven-month low at the start of the year.

The consultancy found that business output in January 2021 fell by 5.38%, to a BDO index score of 70.44, with the service sector driving the decline. Having borne the brunt of lockdown restrictions, as all non-essential businesses remain closed to the public, output fell for a third consecutive month in January.

Relating to this, the BDO Optimism Index also hit a six-month low, as it edged downwards from an index score of 86.96 to 86.34 points in January. While a Brexit deal secured at the end of December was expected to provide some clarity on the UK’s future relationship with Europe, the stories since emerging of difficulties in trading with the EU have seen optimism take a knock, as businesses continue to navigate checks, delays and red tape. Coupled with flagging output, this could sink further in the coming months.

However, BDO did find some room for optimism. While service industry players were positioned to struggle with bricks-and-mortar presences closed, other sectors have been well equipped to adapt to the situation. According to BDO, while output fell in general, economic activity was significantly higher in January than it was in April 2020 – something the firm shows how businesses have had time to adapt to the current restrictions, meaning many are able to continue to provide some level of service. This could help lift business optimism in the year to come.

BDO partner Kaley Crossthwaite said the figures showed the strength of UK business, stating, “While these figures illustrate the severity of the impact that national lockdown restrictions are having on the economy, they also show the resilience of UK businesses - many of which have developed new procedures, products and services to allow them to continue trading… With the government expected to outline the nation’s ‘route map’ out of lockdown in the coming weeks and as the UK’s successful vaccination rollout continues, sentiment should rebound providing disruption to trade across the channel is minimised with further government support.”