Business confidence in the manufacturing sector has plummeted to a two-year low, research finds.
This month saw optimism tumble by more than 26 points in just four months, to a mark of 90.1 in June down from 116.4 in February, according to the latest Business Trends report by accountant BDO LLP.
The drop can be attributed to slackening demand domestically as well as the global economic slowdown, with business sentiment in the Eurozone hit by the ongoing sovereign debt crisis, says the firm.
Partner at BDO LLP Peter Hemington says, ‘Such a marked slump in business confidence in the manufacturing sector is a real concern given that it has provided the propulsion for the economic recovery so far.
BDO urges the government to implement supply side reforms – particularly reform of the tax system, measures to encourage private sector investment in infrastructure and introducing more flexible employment laws to facilitate businesses’ ability to react swiftly to volatile conditions.
The firm adds that low interest rates are essential to maintain momentum for growth, by driving spending at a time when consumers are feeling the pinch.
The gloomy forecast has been compounded by increasing inflationary expectations, with BDO’s Inflation Index reaching 112.9 – the highest figure in 33 months. However, due to the slowing pace of the recovery, a rise in interest rates could further derail growth prospects, the firm says.
Hemington concludes, ‘The weakness of the pound, which should make manufacturing exports more competitive, has failed to generate the hoped-for returns. Perhaps this is because, with today’s integrated global supply chains, the benefits of the low exchange rate have been offset by higher input prices.’
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