BDO's latest report indicates decline in business confidence

Optimism in the sector is said to have fallen by more than 26 points in four months to 90.1 in June, down from 116.4 in February.

According to BDO, the drop can be attributed to loosening demand domestically, as well as the global economic slowdown, with business sentiment in the Eurozone hit by the continuing sovereign debt crisis.

Peter Hemington, partner at BDO, said: ‘To reinvigorate the sector and the economy more widely, we need a three-pronged approach. First, we urge the government to implement supply-side reforms, particularly a 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.

‘Second, although inflation remains high, low interest rates are essential to maintain momentum for growth, by driving spending at a time when consumers are feeling the pinch.

‘Third, as recovery prospects over 2011 seem sluggish at best, the Bank of England should continue to consider a third round of quantitative easing to provide some much-needed impetus for growth.’