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UK’s optimism index falls for the fifth consecutive month

But manufacturing optimism improves, with the highest monthly rise in confidence since February 2011.

The UK optimism index has hit a seven-month low at 93.1 in July 2012, falling for the fifth consecutive month from 93.5 in June, according to the latest business trends report by the accountants and business advisers BDO.

The index, which forecasts business performance two quarters ahead, has also moved further away from the crucial 95.0 mark that indicates growth, pointing to contraction for the remainder of 2012.

During the first quarter of 2012, business confidence reached as high as 98.0 but now reads at the lowest level since December 2011.

Confidence in the manufacturing sector improved substantially in July, moving up from 83.8 in June to 90.5, following a decline of 8.4 points between May and June. This increase of 6.7 between June and July is the highest monthly rise since February 2011 and is likely to be the result of the UK manufacturing sector diversifying its exports, with more than 50 per cent of its trade now being exported to outside the erratic eurozone.

However, service sector confidence declined in July, falling by 2.1 points to 93.8.

Peter Hemington, partner at BDO, said:

This month’s figures serve as a stark reminder of the continuing difficulties the UK economy faces, with zigzagging business confidence undermining the improvement in confidence that we saw at the start of 2012.

Where there is cause for cautious optimism is in the revived confidence in the manufacturing sector. The sector should be applauded for taking a pragmatic and adaptable approach to diversify exports away from the volatile eurozone. ONS figures in July showed that for the first time more than 50 per cent of the UK’s goods went to countries outside the eurozone.

Other UK businesses could look to emulate this tactic - opportunity costs, and it may be that their money is better spent marketing elsewhere, looking to the BRICs, CIVETs and the so-called Next 11. In that vein, the government’s initiative to use the Olympic Games as an opportunity to discuss trade and investment with a variety of heads of state in a series of summits is laudable.