UK economic growth is expected to continue throughout 2015, but a sharp drop in business confidence suggests that the current momentum is under threat, according to a study.
The Output Index from accountants BDO increased marginally to 104.5 from 104.4 this month, indicating that UK businesses expect continued robust growth in the latter part of 2015.
Strong consumer spending, enabled by rising wages and near-zero inflation, is the driving force behind this.
But cracks are emerging in the longer-term outlook. BDO’s Optimism Index suffered a sharp drop to 101.9 this month, down from 103.3, representing a fifth consecutive monthly drop in UK business confidence demonstrating that companies are concerned about their prospects beyond 2015.
Manufacturers are particularly concerned, recording their lowest level of confidence (86.2) since November 2012. This is dramatically below the 95 mark which indicates growth.
Exporters, already pressured by the continued strength of the pound, are increasingly nervous that economic turmoil in China will start to affect growth around the world, hitting their core markets.
BDO partner Peter Hemington says that while the expected continued economic growth is encouraging, falling business confidence suggests the UK economy is approaching a turning point.
‘Policy makers cannot ignore this, otherwise they run the risk of an economic slowdown. Any rumours of a rate rise in the near future must be squashed. Now is not the time to cut household spending, the very thing driving economic growth, or to introduce moves which will strengthen the pound further and hit our exporters,’ he says.
‘The UK cannot rely on consumer spending and services in the long-term. Policy makers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in the North and Midlands.’