BDO’s Business Trends index has fallen from 103.3 in April to a record low of 97 in May.
The accountancy firm’s index is based on a survey compiled by the Centre for Economics and Business Research from 11,000 companies across a range of industry sectors.
The disappointing index result does come however when company order book growth for May was strong. But BDO says that the upcoming cuts together with tax rises may lead to lower future growth meaning that growth forecasts need to be revised downwards.
The index is a measure of confidence in the future. It is a measure of company sentiment. All it tells us is how the companies feel about the future, not what is bound to happen.
The coalition government have been sowing the seeds of negative sentiment by shouting about the economic horrors to come from the rooftops. Many would see this as ‘talking the UK down’ when what we should be doing is painting a more optimistic future.
As Peter Hemington, a partner with BDO, put it when talking to the BBC "The government has understandably been keen to emphasise the extent of the sacrifices that we all will need to make as public borrowing it brought under control. But there is a significant risk that the rhetoric has begun to impact on business confidence, and fears of the economic impact of spending cuts may be causing businesses to rein back on growth plans."
But it would be equally foolish of a government to talk the country up when there was no basis for doing so.
Governments should tell it like it is when it happens without the need to over-egg it either way. But that is very difficult when the people blame the government for everything.
But what we can blame the (previous) government for is its arrogance in thinking it could beat (and had beaten) the markets.
The UK, just like the rest of the world, is now having to address the very foolish attempts by politicians and central bankers to break the business cycle. They must now learn to live within it, that way leads to far less pain in the long run. That means living with the ups and downs of businesses and letting them go to the wall when they fail, however large they are.