UK Business Optimism Hits 21-Year Low

Business confidence in the UK has gone down to the lowest level in over two decades in January, according to a survey by accountancy firm BDO.

BDO noted that the economy will struggle to grow in the first quarter, as the optimism index compiled by the firm fell to 88.9 in January from 90.3 in December. This was for the eighth consecutive month that the index remained below 95.0, which indicates a growth in business confidence.

The index which is a weighted average of surveys published by the CBI, Bank of England and the Chartered Institute of Purchasing and Supply, has recorded the lowest reading in the month since the survey was launched in 1992.

"In spite of a strengthening labour market, business confidence continues to weaken, and improved hiring intentions are not translating into growth plans. It seems the damaging effects on businesses of five years' zigzagging economic growth has left them wary of making concrete plans for expansion and resigned to the 'new normal' of economic stagnation," said Peter Hemington, a BDO partner.

Hemington noted that the UK firms are becoming used to the lack of growth in the economy, and the government should interfere and implement plans to boost growth in order to put an end to the situation.

The lower business confidence was amid improving employment conditions in the country. BDO's index measuring businesses' hiring intentions over the next two quarters rose to 95.1 in January from 93.0 in December. The reading above the 95.0 mark was for the first time since April 2012.

In the manufacturing sector, however, optimism was high with a sub index rising to 95.2 in January from 91.9 in December. Defence contractor, BAE Systems, the UK's largest manufacturing employer, was planning to hire about 400 new apprentices in 2013, the highest number it has employed since 2008.