Weak business confidence still jeopardising investment

Business confidence continues to slide in the UK, with few expecting to see economic growth over the coming six months, according to a survey published today.

Against a backdrop of unresolved sovereign debt problems, sharp austerity measures and turmoil in the stock markets, Britain's manufacturing sector is facing a particularly sharp decline, says the latest Business Trends report from accountants BDO.

Manufacturing orders are dropping sharply, with the BDO index hovering at 93.9 – where 95 indicates a contraction – its lowest level since October 2009.

Meanwhile, the related "optimism index" has stayed below 95 for the second consecutive month, as manufacturers struggle against increasingly difficult trading conditions.

The picture is little brighter in the services sector, where both the optimism and output indices have been broadly flat at the 95 mark for more than a year.

And with BDO's inflation index reaching a 35-month high, and showing little sign of reversing, the only good news is that manufacturing wages are not rising at an equal rate, with year-on-year pay growth at just 1 per cent.

BDO partner Peter Hemington said the latest survey provided clear evidence that the UK's economic recovery was faltering.

"The rapid decline of the manufacturing sector, championed as the key to a rebalancing of the UK economy, is alarming," he said. "And the services sector is showing little sign of picking up the slack."

The BDO survey echoes other recent findings by the Chartered Institute for Purchasing and Supply, the CBI and the British Chambers of Commerce. They may explain why British business is sitting on about £60bn of investment – some 4.5 per cent of GDP – apparently while waiting for economic and political risks to abate.

Surveys of consumer confidence have also shown a disappointing trend.