Insider Media Limited

Businesses are not expecting to see much economic growth over the next 12 months, according to a report by accountancy firm BDO. The firm, which has an office in Birmingham, attributed the shortfall in part to a fragile manufacturing sector.

Confidence declined across the board in July, according to the firm's Business Trends report.

It suggested that economic growth was profoundly hampered by ongoing fragility in the manufacturing sector which was reported last month (July 2011).

The manufacturing output index – a measure of orders on hand and a good guide to manufacturing growth one quarter ahead – fell to 93.9, below the 95 level which indicates contraction of the industry.

BDO said the manufacturing optimism index has stayed below the 95 level for two consecutive months, suggesting the sector will remain mired in recessionary conditions past the turn of the year.

Tom Lawton, Birmingham-based partner and head of manufacturing at BDO, said: "As our data has suggested for some time, the UK’s economic recovery continues to falter. The rapid decline of the manufacturing sector, championed as the key to a rebalancing of the UK economy, is alarming. And the services sector is showing little sign of picking up the slack.

"The government faced some very difficult choices when it came to office and its decision to give public borrowing first priority may well have preserved the UK from getting embroiled in its very own sovereign debt crisis.

"Unfortunately, a key side effect of this policy was that business confidence plummeted last year and has remained low ever since. Manufacturing was one of the few bright spots, but this is now in a contractionary phase."