Employment index shows rising optimism in private sector, while manufacturers continue to struggle

A key employment index has reached a 19-month peak, suggesting that private sector recruitment plans are looking up, the new Business Trends report by accountancy firm BDO shows.

The BDO Employment Index, which records British firms' recruitment intentions during the next six months, rose to 96.0 in March, the highest level witnessed since summer 2011.

This is the third month in a row that the index has met the vital 95.0 threshold which is seen as a sign of rising employment.

This indicates that British firms will help to counterbalance predicted unemployment caused by redundancies in the public sector. At the same time, firms do not expect to see financial growth in the next six months.

BDO's Output and Optimism indices, which predict short-term revenue and productivity, are at 93.0 for the next quarter and at 92.2 for the next two quarters.

Significantly below the growth threshold of 95.0, this indicates a challenging financial climate in the first half of this year.

However, there was more optimism in the services sector, as confidence rose to 93.2 from 89.6 in February, and output rose to 93.2 from 91.5 in March.

This growth is especially encouraging as the services sector represents around 75% of the British economy.

Confidence in this area has reached a peak since October last year.

Meanwhile, the manufacturing sector has seen a continued slump. Confidence among manufacturers dropped from 94.5 in February to 88.2, while the BDO Output Index also dropped, from 94.1 to 92.4.

The weak pound combined with low consumer confidence and troubled EU import partners is likely to challenge optimism.

"It is encouraging to see improvement in UK businesses' hiring intentions, particularly in light of the imminent public sector payroll cuts which will add pressure to the unemployment rate," Peter Hemington, a partner at BDO, said.

He added that a fall in optimism in the manufacturing sector is of great concern and described Government measures in March's Budget as disappointing.

He added: "In particular, a time limited increase in capital allowances would have been a good step to take in order to encourage the manufacturing industry to invest and grow."

Copyright Press Association 2013