By Daniel Hunter

Business confidence rallied in October giving cause for cautious optimism, with both output and optimism indicators rising for a second consecutive month, according to the latest Business Trends report by accountants and business advisers BDO LLP.

The increase in confidence suggests short-term signs of improvement. BDO’s Optimism Index, which predicts business performance two quarters ahead, rose to 93.2 in October from 92.5 in September and follows a record low of 89.1 seen in August.

Echoing this, BDO’s Output Index, which predicts short-run turnover expectations, increased to 92.1 in October from 91.2 in September, the strongest reading since July 2012.

Despite the improvement, the UK economy remains fragile, with manufacturers in particular feeling gloomy about near term growth prospects. BDO’s Optimism and Output indices remain below the 95.0 mark that would indicate a return to growth.

In addition, while overall confidence is slowly rising, significant risks to the economic outlook remain. The threat of Eurozone flare-ups and weak, if improving, global growth means that businesses face an uncertain outlook for the remainder of 2012 and into early 2013. This is evidenced clearly by the manufacturing sector, where Optimism dipped to just 89.2 in October.

“Business confidence is steadily improving so there is cause for cautious optimism," Peter Hemington, Partner, BDO LLP, commented.

"However, UK manufacturers in particular are fearful for the future. To help, we hope the Chancellor’s Autumn Statement will set out concrete plans for a UK Business Bank to add to the government’s other growth initiatives.”

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