Improving UK Business Prospects Further Boost for George Osborne as Recovery Unfolds

Optimism about Britain's economy will be boosted by a report from accountancy group BDO which says short-term UK business prospects have reached their highest level since March 2011.

According to the Business Trends report, which looks at near-future expectations of British businesses, three out of the four indexes in the research showed improvement in August 2013 on the previous month.

It comes as Chancellor George Osborne hails the UK economy for showing "tentative signs of a balanced, broad-based and sustainable recovery" amid a string of improving data.

The Improving Picture

The BDO Output Index that looks at turnover expectations and the immediate experience of UK businesses climbed to 98.3 in August, up from 96.8 in July. In August 2012, the reading for UK output was 90.8.

Similarly, business confidence also rose with the BDO's Optimism Index lifting to 98.0 in August 2013 from July's 95.6, the highest score since May 2011.

The lack of business confidence is one of the crucial factors that has held up investment in the UK, as there has been much uncertainty about the global economy since 2008.

From a British perspective the stagnation in the eurozone has hit the UK's exports hard.

Inflation Expectations

There was further good news for Bank of England Governor Mark Carney as the BDO Inflation Index showed that inflation expectations had fallen from 102.2 in July 2013 to 101.0 in August 2013, recording their third consecutive monthly decline.

It follows an inflation expectations poll by the BoE which found the lowest number of Britons since November 2008 expect interest rates to rise over the next 12 months.

Any evidence of low inflation expectations should help the BoE implement its forward guidance policy that Carney believes is essential to help support the UK recovery.

The Bad News

Unfortunately for the government, the BDO Employment Index remains flat at 97.0 for both July and August 2013.

While the better economic indicators are welcome, they take a while to translate into the real economy and help the unemployed find jobs, according to Peter Hemington, a partner at BDO LLP.

"The sting in the tail is that the improvement is not being reflected in businesses' hiring intentions. We're likely to see more public sector job cuts over the next 12 months and as Carney recently pointed out productivity in 2013 remains stuck at the same level as it was in 2005," he said.

BDO Monthly Business Trends Indices survey takes in over 4,000 respondents from companies employing approximately five million people.