UK manufacturers "surprisingly confident" says report

The latest report shows continuing signs of encouraging economic prospects for the UK over the coming six months, despite uncertainty following the US Presidential Election and the UK’s decision to leave the European Union.

BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, continues to rise and now sits at 103.7 from 102.2 in December, above its long-term trend.

Meanwhile, BDO’s Output Index - which indicates how businesses expect their order books to develop in the next three months - has increased for the third consecutive month, rising slightly from 97.4 to 97.5.

BDO attributes the positive performance of UK businesses to an overall improvement in the global economy, the decrease in the value of sterling and better-performing key export markets.

However, despite the immediate benefit of sterling’s sharp fall in value and the optimistic mood of UK businesses, sterling’s devaluation represents a double-edged sword as it continues to contribute to rising inflation. And while currency depreciation makes British exports more price competitive, firms’ input prices have risen sharply, squeezing margins. In January, Markit/CIPS PMI showed factory raw material costs rose at their fastest pace in over 25 years, a result of higher prices for oil, steel and other import costs.