By Marcus Leach

A survey carried out by accountants BDO suggests that confidence amongst UK manufacturers is at its lowest level for two years.

The Business Trends optimism index has fallen gradually this year, going from 116.4 in February, to 97.5 in May to 90.1 last month.

The gradual drop could be attributed to a decrease in domestic demand, as well as global economic slowdown.

"To reinvigorate the sector and the economy more widely, we need a three-pronged approach," said Peter Hemington, partner at BDO LLP.

"First, we urge the government to implement supply-side reforms - particularly reform of the tax system, measures to encourage private sector investment in infrastructure and introducing more flexible employment laws to facilitate businesses' ability to react swiftly to volatile conditions."

"Second, although inflation remains high, low interest rates are essential to maintain momentum for growth, by driving spending at a time when consumers are feeling the pinch.

"Third, as recovery prospects over 2011 seem sluggish at best, the Bank of England should continue to consider a third round of quantitative easing to provide some much needed impetus for growth."

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