Economic imbalance looms as manufacturing optimism dips -BDO

BDO’s optimism index – which predicts growth six months ahead – remains above its long term trend at 101.9, indicating that businesses expect their order books to continue to grow strongly. However, this is driven by the buoyant services sector, masking serious concerns among manufacturers.

Manufacturers’ optimism is deep in negative territory at 90.2, showing that manufacturers are gloomy about the future. In contrast, the services sector is expecting rapid growth, with optimism scores well above the trend at 104.2.

Short term economic prospects – as predicted by BDO’s Output Index - are more positive, with all sectors expecting strong growth and output over the next three months. The BDO Output sub-indices sit at a healthy 103.8 and 103.9 for manufacturing and services respectively.

The contrast between the manufacturers’ Output Index – which reflects actual experience of order intake – and the Optimism Index – which reflects judgements as to how orders will develop - is stark. It seems that the UK’s makers fear a sudden contraction as we go into 2016, even if trading remains strong today.

These trends could see the economy become even more unbalanced as sluggish manufacturing growth becomes entrenched and the UK becomes even more reliant on the service sector for growth.

Commenting on the findings, Martin Gill head of BDO LLP in Scotland, said: “These figures show that the UK needs to act now to support our manufacturing industry. The government must do more to encourage investment and help the sector to grow.

“The government’s plans to encourage a more balanced economy are clearly right, but need to be accompanied by far more action. For instance, incentives to invest and plan for future success should be increased significantly.”

BDO’s Building the New Economy Report calls for a greater role for manufacturing in helping to rebalance the economy and makes a series of policy recommendations, including: