Business Costs Enter Deflation Period for First Time in Six Years

The business outlook for 2015 remains positive as output, optimism and hiring rates continue to rise and reduced overheads allow firms to focus on growth

UK enterprises are experiencing an overall cost deflation period for the first time since 2009, according to the latest business trends report by accountancy firm BDO LLP.

The BDO’s inflation index fell below 95 (the line which denotes deflation) to 94.7 in February, meaning companies can capitalise on low input costs and focus on investing in growth and business infrastructure.

Other positive findings include an increase in business output, up from 102.9 to 103.1 this month – indicating continued growth for firms in 2015. Hiring rates also appear to be on the rise with the BDO’s employment index up to 113.1 from 111.6 and business optimism up from 104.4 to 104.9.

According to the report, the main reason behind the drop in business overheads is a result of the huge drop in crude oil prices, which is now directly affecting other bottom line costs and will be particularly beneficial to enterprises in the manufacturing industry who rely heavily on energy.

BDO LLP partner, Peter Hemington, discussed the results:

“British business is well placed to take advantage of falling costs, to help them to bed in growth.

“Lower input prices will help entrench the recovery, as consumers gain more spending power. However, the UK economy still has substantial spare capacity. Spending on infrastructure is one of the most effective ways to push the economy back toward full employment and keep the recovery on track.”

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