UK businesses see brighter economic prospects

Optimism in the manufacturing sector is not as bouyant as in the services sector

Confidence is improving across most UK businesses, according to the latest business surveys, although manufacturers are less optimistic.

Business lobby group the CBI said the economy was moving from "flat to growth", although it kept its forecast for growth this year at 1%.

Meanwhile, accountancy firm BDO said business confidence improved in April, particularly in the services sector.

However, BDO said the outlook for manufacturing "remains bleak".

And the CBI said "clear challenges" remained both at home and abroad, with uncertainty in the eurozone and what it called a muted international outlook holding back investment.

It said that at home, inflation presented a problem for consumers who were finding it eroding their living standards. It expects inflation to peak at 3.1% during this quarter.

The CBI's director-general, John Cridland, said: "Amongst CBI companies, there's a general sense that the forward mood has brightened a little."

He said the government's Funding for Lending Scheme was beginning to have an impact: "When I talk to small businesses, they are already seeing the benefit on cost [of credit], and lower cost leads to more availability."

Mixed picture

The BDO survey gauges optimism in business performance and the economy over the next six months.

Although its Optimism Index hit 93.0, it is still below the score of 95 needed to indicate growth.

However, the index did move up 0.8 points from March, and is at its highest point since October 2012.

Peter Hemington, a partner at BDO, said confidence seemed to be returning slowly to UK businesses, and that there was a continuing revival in the services sector.

"However, as in previous months, our indices reveal a mixed picture," he added.

"The manufacturing sector is a particular concern. If it is serious about its plan to rebalance the UK economy, we continue to believe that the government could do more to help UK manufacturing, particularly by encouraging both lending and investment in the sector.

"We also still think there is an excellent opportunity for the government to expedite the UK's economic recovery by increasing public investment."

The BDO report said the divergence between the expected fortunes of the services and manufacturing sectors could be partly explained by the impact of increasing inflationary pressures on UK businesses.

Manufacturing, it said, had been hit harder by the rising prices of energy and commodities.