BUSINESS confidence has reached its lowest point this year, indicating a bleak second half of 2012, according to the latest Business Trends report by accountants and business advisers BDO LLP in the East of England.

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And a separate report, the monthly Lloyds TSB East of England PMI survey, also published today, points to declines in both output and new orders in the region’s private sector economy during June.

BDO’s Optimism Index, which predicts business performance two quarters ahead,- has hit a six-month low, falling for the fourth consecutive month from 95.5 in May to 93.5 in June. This is the lowest reading since December 2011, and for the first time since January takes the Index below the crucial 95.0 mark that indicates growth.

In addition, the short-term economic outlook took a knock in June, as the BDO Output Index, which forecasts business conditions in one quarter’s time, fell from 96.7 to 94.8.

This is the single biggest monthly fall in the index since June 2011, reflecting the rapidly weakening short term economic outlook and comes shortly after lower than expected GDP figures for Q4 2011 and Q1 2012 were unveiled.

Confidence dropped particularly sharply in the manufacturing sector, as the Manufacturing Optimism Index plunged from 96.5 in May to 83.8, the lowest reading since March 2009.

With around half of manufactured exports being purchased by the eurozone, ongoing concerns about growth prospects in the bloc are clearly mirrored by the Business Trends data.

Richard Kelly, partner and head of BDO Eastern, said: “The figures point to a tough economic climate for the remainder of the year, possibly beyond.

“As the eurozone continues to be blighted by instability, the Government must take steps to ensure the economy is not at the mercy of the single market. Since half our export goods go to the eurozone, it’s not surprising that turbulence there is denting longer-term growth prospects here.

“A cohesive and outward-looking approach is needed to ensure we exploit all potential avenues for growth – we would urge the Government to collaborate and look for unexplored trade opportunities, not only within the G20, but also with the developing economies to achieve a coordinated and global response to ongoing economic volatility.”

The headline seasonally adjusted Lloyds TSB East of England Business Activity Index, which measures the combined output of the region’s manufacturing and service sectors, dropped to 49.3 in June, from 52.3 the previous month.

This signalled the first decline in output in the region in eight months. The fall in activity was only marginal, but contrasted with output growth across the UK economy as a whole.

Sector data suggested that the overall reduction in output was largely reflective of a decline in manufacturing production.

Anecdotal evidence indicated that falling new orders was a factor behind the drop in activity. In turn, respondents pointed to declining demand in both domestic and external markets.

New business at East of England firms decreased for the second month running and at a solid pace that was the fastest since April 2009.

Staffing levels continued to increase, extending the current sequence of job creation to seven months, but the pace at which firms took on extra staff slowed for the second month running, and was only slight. Both monitored sectors posted increased employment, with the rate of jobs growth quicker at services companies.

A lack of new business contributed to further backlog clearance during June, with East of England companies reducing outstanding business at a solid pace. The latest decrease extended the current sequence of backlog depletion to one year.

The rate of input cost inflation slowed markedly in June, and was the weakest since May 2009. The pace of input price inflation has now eased in three successive months. Respondents indicated that lower fuel and raw material costs had contributed to weaker price inflation.

East of England firms lowered their output prices in June, ending a three-month sequence of inflation. Those panellists that reduced their prices charged linked this to strong competitive pressures. The fall in output prices in the region was modest, but stronger than that recorded at the UK level.

Steve Elsom, area director for Lloyds TSB Commercial in East Anglia, said: “June was a gloomy month for the economy across the East of England, as the survey showed a decline in activity for the first time in eight months.

“Worryingly, new business also fell, and at a faster rate, contrasting with growth at the UK level. With growth having slowed again, the region started to underperform the rest of the UK private sector, and the ongoing slowdown in the global economy suggests that a difficult road lies ahead in the second half of the year.”

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