Business confidence has fallen to its lowest point this year with prospects in the service and manufacturing sectors looking poor for the rest of 2012, according to new research.
The latest Business Trends report by accountants and business advisers BDO, who have a major office in Bristol, shows confidence among business owners falling for a fifth consecutive month with the service sector particularly gloomy.
BDO’s Optimism Index – which predicts business performance two quarters ahead – has hit a seven-month low, falling from 93.5 in June to 93.1 in July. This follows a brief resurgence in the first quarter of this year when confidence reached as high the 98 mark.
Worryingly, that means the index has also moved further away from the crucial 95 mark that indicates growth, pointing to contraction for the remainder of 2012. The index also highlights fluctuating confidence levels in manufacturing and services.
Belying the decrease in confidence in the overall Optimism Index, confidence in the manufacturing sector bounced back in July to 90.5 from 83.8 in June, when the figure had declined by 8.4 points from May. The increase of 6.7 between June and July is the highest monthly rise since February 2011 and is likely to be on account of manufacturers moving their exports away from the crisis-hit Eurozone – with more half of UK trade is now outside the zone.
Service sector confidence declined in July, falling by 2.1 points to 93.8. This dip in confidence follows consistent increases between February and May, demonstrating how unsettled optimism levels in key UK sectors are generating the zigzag pattern of business confidence in the overall UK economy. Crucially, this means that both indices remain under the 95 mark that indicates growth.
BDO partner Graham Randall said: “This month’s figures serve as a stark reminder of the continuing difficulties the UK economy faces, with zigzagging business confidence undermining the improvement in confidence that we saw at the start of 2012.
“Where there is cause for cautious optimism is in the revived confidence in the manufacturing sector. The sector should be applauded for taking a pragmatic and adaptable approach to diversify exports away from the volatile eurozone.
“Other UK businesses could look to emulate this tactic – opportunity costs, and it may be that their money is better spent marketing elsewhere. In that vein, the Government’s initiative to use the Olympic Games as an opportunity to discuss trade and investment with a variety of heads of state in a series of summits is laudable.”