UK business confidence is improving, according to the latest monthly business trend indices from accountancy network BDO.
After the optimism index saw a sharp increase of 1.6 to 92.2 last month, it climbed further this month to 93: its highest since October 2012. The overall output index also saw a strong improvement of 1.1 points to 94.1 – the highest reading for 10 months.
However, the services sector is the driving force behind this confidence boom, and the outlook for manufacturing continues to look bleak.
The services output index, which predicts short-run turnover expectations, moved up from 93.2 in March to 94.9 in April – only marginally below the mark of 95 which indicates growth. Optimism also increased among service businesses, with the services optimism index also increased to 94.1 from 93.2 last month. Given that the services sector makes up around three quarters of the economy, the figures suggest that Q2 2013 has got off to a good start.
However, the prospects for the manufacturing sector continue to weigh heavily on overall performance. The manufacturing outlook index fell for a second month, from 92.4 to 90.8, while the optimism index only enjoyed a negligible rise by 0.1 to 88.3.
The increasing divergence between the services and manufacturing sectors can be partly explained by the impact of increasing inflationary pressures on UK businesses. The inflation index rose a whole point to 102.4 in March – the highest since February 2012. Furthermore, the manufacturing sector particularly will have been hit by the recent sterling depreciation which has raised the prices of energy and soft commodities.
Overall, the sentiment of UK businesses appears to be on the rise: confidence is being instilled and businesses are becoming more positive about their production levels. This positivity is mirrored by the BDO employment index, which this month reached 96.4 – the highest seen since August 2011.
Even so, there are clear signs that the government still has plenty of work to do to, particularly for the country’s manufacturers. Indeed, the figures should serve as a sign to the Government that it has the potential to expedite the UK’s economic recovery by increasing public investment.