Manufacturing lifts UK business output

UK manufacturers are lifting overall UK business output, according to the latest Business Trends Report by BDO.

BDO’s Output Index, which tracks GDP growth in the past month, increased to 99.78 from 99.63. Business output has now risen for the past two consecutive months and is edging closer to the long-term growth trend of 100. The increase has been driven by a sharp improvement in UK manufacturing output, despite the sector only making up around one tenth of total economic output.

BDO’s manufacturing output sub-index rose more than three points to 103.85 in February from 100.67, which is well above the long-term growth trend. This is the highest reading the manufacturing sub-index has recorded in seven months. Over the past year, manufacturers have benefited from strong world trade growth and a weaker pound, which has made their goods more price competitive for overseas buyers.

In contrast, the output of the UK’s services sector continues to slow. BDO’s output sub-index fell from 99.50 to 99.26 in February, falling further below the long-term growth trend but still above the point of contraction, under 95. The index has now been hovering below 100 since September last year, suggesting that companies in the services sector are struggling to improve performance.

British businesses remain optimistic about their growth over the next six months. BDO’s Optimism Index, which indicates how firms expect output to develop in the coming six months, increased to 102.29 from 102.09. This can be attributed in part to falling inflation, reducing input costs for businesses. BDO’s Inflation Index, which is a composite of consumer price and input price inflation, fell from 101.15 to 99.02.

BDO partner Peter Hemington said: “Global trade is roaring and has provided a huge boost for UK manufacturers. However, expectations that this will start to taper off and talks of trade wars could dampen forecasts for the UK economy.

“Hints of an interest rates hike are also making British businesses more cautious. As this extended period of uncertainty continues at home and abroad, now is the time for businesses to make bold moves to invest in their futures – so it’s paramount that the Bank of England holds its nerve and keeps rates to a minimum to help fuel growth for the UK.”