World Economy

UK Manufacturers Downbeat

UK Manufacturers DownbeatUK Manufacturers Downbeat

New doubts have emerged over the UK’s economic outlook after new evidence that growth is reliant on household spending while manufacturers struggle with a strong pound and the fallout from a downturn in China.

UK economic growth is expected to hold up during the second half of this year but a sharp drop in business confidence in recent weeks suggests the momentum is under threat, according to a round-up of indicators from accountants BDO, an international network of public accounting, tax and advisory firm, NewsNow reported.

Its latest output index for the UK edged up this month, with the main impetus for growth coming from strong consumer spending thanks to rising wages and near-zero inflation. But confidence among businesses fell for the fifth straight month, according to BDO, which produces its optimism index by combining findings from Bank of England regional agents, CBI surveys and the Markit/CIPS purchasing managers reports.

“While the expected continued economic growth is encouraging, falling business confidence suggests the UK economy is approaching a turning point,” said BDO partner Peter Hemington.

“The UK cannot rely on consumer spending and services in the long-term. Policymakers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in the north and Midlands.”

Manufacturers were particularly downbeat, recording their lowest level of confidence since November 2012, BDO said. Their mood echoes official figures last week showing sharp falls in exports and manufacturing output and a gloomy outlook from the manufacturers’ organization EEF, which bemoaned a hit to business from China’s slowdown.

The Bank of England warned last week that the turmoil on Chinese markets which spread around the world in recent weeks had “the potential to add to the global headwinds to UK growth and inflation”.