Consumers have started the year in confident mood despite the chancellor warning the country faces a “dangerous cocktail of new threats”, as the outlook for jobs improves and the cost of a weekly shop is cut by low petrol prices and intense competition among the supermarkets
According to the latest business trends report by accountancy firm BDO, consumers are “enjoying their best start to the year since the financial crisis and are contributing to an upbeat business outlook”.
Rising wages in many sectors of the economy and low interest rates are shielding consumers from concerns about the worsening outlook for the global economy, highlighted by George Osborne last week.
Businesses across the country are also upbeat about their prospects, after a strong rise in workloads led to organisations in all regions taking on extra staff during December, according to a monthly survey by Lloyds Bank.
Lloyds said the rate of hiring slowed from November, but its index of business activity for England, which combines the manufacturing and service sectors, was 55.5 in December, indicating “a solid rate of expansion overall”.
It said the index had registered above the 50 ‘no-change’ mark for more than three years. This level separates growth from contraction.
The best performing regions were London, the east of England and the south-east, which recorded its fastest growth since April. The slowest expansion in output was seen in Yorkshire and the Humber area, where the business activity index slipped to a near three-year low of 52.5.
BDO’s employment index, which indicates whether businesses plan to hire staff, remained positive at 105.1.
The chancellor said last week that a high level of complacency had crept in to discussion of the economy with many people believing it was “job done”.
Osborne’s address to business leaders in Wales followed a slackening in UK growth since last spring’s general election and a traumatic start to the new year on financial markets triggered by slowing growth in China. The World Bank warned that a “perfect storm” of slowing growth and volatile markets could drag down global growth in 2016.
Trade data from China on Wednesday is expected to show a further decline in imports and exports, highlighting the country’s struggle to maintain its 7% GDP growth target.
However, BDO said rising wages have contributed to a buoyant consumer outlook. Total payrose by 2.4% in the most recent quarter.
Peter Hemington, a partner at BDO, said: “Consumers are really seeing the benefits of the UK’s strong economic recovery, and this is helping British firms to withstand tremors in the global economy. However, there is no room for complacency, and the government needs to protect economic growth by focusing on business investment.”
He said the introduction of the “national living wage” would also give those on the lowest incomes “a welcome boost” this April.
He added: “Coupled with low price rises, consumers should have a spring in their step to start the new year. Businesses are feeling the benefits of low price rises too with the BDO Inflation Index remaining at 96.4 for the second month running.”
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