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Business confidence has continued to spiral and few companies expect to see any real economic growth over the next six months, according to a report published today (15 August 2011).

The Business Trends report, carried out by BDO, said growth has been profoundly hampered by ongoing fragility in the manufacturing sector.

The manufacturing output index – a measure of orders on hand and a good guide to manufacturing growth one quarter ahead – has fallen to 93.9. The figure is below the 95 level which indicates contraction of the industry, and the lowest since October 2009.

The services sector, while not declining like the manufacturing sector, has been hovering around 95 for both optimism (95.5) and output (95.3) for more than a year. This suggests zero growth in the sector for the rest of 2011.

Philip Storer, audit partner at BDO in Manchester, said: "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."

He added: "One can't pretend that it's easy to see what the government should do next, but we should not forget that continued low growth is as substantial a medium term threat to the UK’s credit worthiness as continued high borrowing is in the short-term.

"The need to tackle inefficiency and overspending in the public sector remains clear. In addition, we believe that a greater focus on supply side measures to improve UK competitiveness is vital.

"This would include simplifying and making the tax system more attractive, continued reform of labour market regulation and looking hard at ways to improve the quality of the UK’s infrastructure."


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