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Service sector slowdown sends business confidence to 2-year low

A slowdown in the services sector has hit output and sunk UK business confidence to its lowest level in more than two years, according to new research.

The Business Trends Report from accountant BDO shows that the Output Index, which reflects orders for the next three months, fell from 101.7 in February to 101.3 in March.

Meanwhile, the Optimism Index, which measures growth six months ahead, dropped to 99.4 - below the long-term trend and the lowest score in more than two years.

Service sector output has now fallen for five months running, with BDO saying many firms feel starved of investment as uncertainty over the UK's future in the European Union delays spending decisions.

The picture is even worse for manufacturing, where the industry's Optimism Index fell to 87.1 in March - a strong indication that order books will decline sharply over the next six months if nothing changes.

The Inflation Index offered some hope to manufacturers, however, as it rose 0.1 to 96.8 las month. Nevertheless, as some commodity prices stay low, this minor increase will not be enough to give a boost to under-pressure sectors such as steel, BDO noted.

Peter Hemington, partner at BDO, said: "The UK's slowing economy is in need of additional support to protect its growth. Recently both the IMF and the OECD have warned of the dangers of too much austerity in the UK.

"The Government can currently borrow at rates never seen before. It is in a prime position to safeguard economic growth by investing in our public infrastructure. Expansion in our road, house and rail building programme could reignite UK manufacturing and our steel industry would be a prime beneficiary."

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