Fall in UK business optimism suggests 'turning point is approaching'

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The UK economy is expected to see more robust growth for the remainder of this year but "cracks are emerging" as business optimism slides, new figures show.

A monthly output index for accountancy and advisory firm BDO showed a rise from 104.4 to 104.5, indicating firms expect expansion for the remainder of 2015 - driven by consumer spending, enabled by rising wages and near-zero inflation.

But BDO's optimism index fell for a fifth month in a row, demonstrating that firms were concerned about prospects beyond this year. For manufacturers this was at the lowest level since November 2012.

The report said exporters were increasingly nervous that economic turmoil in China would start to affect growth around the world, hitting their core markets.

BDO partner Peter Hemington said: "While the expected continued economic growth is encouraging, falling business confidence suggests the UK economy is approaching a turning point.

"Policy makers cannot ignore this, otherwise they run the risk of an economic slowdown. Any rumours of a rate rise in the near future must be squashed.

"Now is not the time to cut household spending, the very thing driving economic growth, or to introduce moves which will strengthen the pound further and hit our exporters.

"The UK cannot rely on consumer spending and services in the long-term. Policy makers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in the North and Midlands."

Figures last week showed the manufacturing sector suffered its largest monthly fall in more than a year in July, shrinking by 0.8% - as exports were hit by the strong pound and weak overseas demand.

The BDO report comes a day ahead of official figures expected to show inflation dipping back to around zero for August.

Low inflation has lifted any pressure on Bank of England rate-setters for an immediate interest rate hike though some are still concerned that the expansion in the economy and rising wages could mean underlying inflationary pressures are building.