Business output returning to growth as manufacturing recovers

Business output returning to growth as manufacturing recovers
Credit: Christian Lagerek

The nation’s manufacturing sector looks set to return UK business output to growth, according to the latest report from BDO.

BDO’s Output Index – which indicates how businesses expect their order books to develop over the next three months – has risen to 95.1 from 94.9 in June.

To put that in context, the point of contract is 95.0. This small rise shows that output is again on the rise. Though slow, this is an encouraging result.

The report also showed that this rise has been driven entirely by the improving performance of the manufacturing sector as the services sector continues to contract.

In July, the Manufacturing Output Index increased to 98.6 – a rise from June’s figure of 97.6 in June. These latest findings show that the figure is rising towards the long-term trend at 100.

Despite the obvious boon for the UK economy, the manufacturing sector only accounts for around a tenth of all of the nation’s economic output. With that in mind, this rise only has a minor effect of the economy’s overall all growth.

Graham Ellis, Audit Director, BDO, said: “Amidst slowing growth in the economy as a whole, UK manufacturing is a definite bright spot at the moment.

“However, our sense is that the recovery is weakening month on month. Given the continuing ability of the UK to create jobs at a surprisingly fast rate and the continuing relatively high levels of inflation, we can understand the calls for a hike in interest rates.

“But considering the economy’s direction of travel we think that tightening monetary policy at this stage would be a mistake.”