UK manufacturers “surprisingly confident” says report

Manufacturing confidence has reached a 20-month high, according to the latest Business Trends Report by accountant BDO LLP.

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.

Commenting on the findings, Tom Lawton, Partner and Head of Manufacturing, BDO LLP, said:  “The UK economy seems to be remarkably resilient. British businesses are surprisingly confident about the short term, encouraged by the opportunities our cheaper currency and a better-performing global economy have created. These have provided a much-needed short-term boost for our economy, particularly our manufacturers. However, government still has much to do in these uncertain times if the UK is going to stay on the right economic track. The modern industrial strategy could be a step in the right direction.  More importantly, simplifying regulation and taxes, and improving our education and training systems are high priorities for businesses in the new economy.  And with government borrowing costs still close to all time lows, the opportunity to replace our worn out infrastructure is still an enticing one.”