South: Manufacturing is rallying while services stall, says BDO

According to the latest Business Trends Report by accountants and business advisers BDO LLP, four months after the Brexit vote, the UK’s two-speed economy appears to be undergoing a role reversal. Manufacturers are feeling more bullish about their economic outlook, while the short-term confidence of the services sector has been dented by lingering uncertainty. 

Manufacturing has received a much-needed boost on the back of the vote to leave the EU.  After a difficult two years for the sector, the weakness of sterling has made UK manufacturing much more competitive in overseas markets, giving an immediate boost to exports and order books. 

The BDO Output Index for manufacturing, which reflects companies’ current experience of orders, has increased to 95.1 from 93.9, putting it firmly back above the 95.0 level which indicates expansion. Similarly, the sector’s Optimism Index – which reflects how companies expect their order books to develop in six months - is at its highest in over a year at 91.3. This and the cheaper pound are both significant contributors to the sector’s growth in confidence this month.

Conversely, the BDO Output Index for the services sector has dipped below its three-year low to 97.3. This downward trend started ahead of the referendum but has become more pronounced since the vote. Despite this, service-sector managers are very positive about the future, with their Optimism Index registering 101.1 this month.

Malcolm Thixton, lead partner of BDO Southampton, said: “British businesses seem to be adopting an optimistic and pragmatic mindset post the Brexit referendum. The signs suggest that the business community has accepted the decision of the people and is determined to navigate the uncertain times ahead successfully. 

“Immediate investment in infrastructure should provide some additional stimulus to the bottom line of UK businesses – though the chancellor needs to deliver a substantial programme in the autumn statement next month. And the Government also needs to do more to bolster optimism by announcing as much as it can around a trade-friendly Brexit plan, so that businesses can best prepare for the opportunities and challenges of life outside the EU.”