A turnaround in business confidence suggests that the UK economy is taking tentative steps towards recovery, research finds.

A turnaround in business confidence suggests that the UK economy is taking tentative steps towards recovery, research finds.

Accountancy firm BDO’s Optimism Index, which points to business performance two quarters ahead, has surpassed the crucial 95.0 mark that indicates growth with a reading of 98.0 for February, the highest in nine months.

This represents a jump of 3.9 points, the single biggest monthly increase since December 2009. It is also the first time the index has topped 95.0 since last August and demonstrates a considerable improvement from the gloomy 91.5 reading just two months ago.

Optimism in the services sector, which accounts for roughly 75 per cent of the UK’s output, is buoyant, increasing to 98.3 in February from 94.7 in January and comfortably exceeding the 95.0 growth threshold.

BDO’s Manufacturing Optimism Index also jumped to 96.9 in February from 91.3 the previous month.

Furthermore, February saw inflationary pressures relaxing again with BDO’s Inflation Index falling to 104.0 last month from 105.2 in January, meaning the Index is at its lowest level since July 2010.

However, inflationary pressures may yet increase as a result of rising oil prices, which climbed significantly in February to top $125 (£80) a barrel, an all-time high in sterling terms.

BDO partner Peter Hemington says, ‘It is encouraging to see business confidence improving significantly for the second consecutive month. Increasing optimism across sectors like manufacturing and the all important services sector is particularly welcome.

‘To ensure we continue to see progress and positive Q3 growth as our figures indicate, the Chancellor should use the upcoming Budget to ensure that the UK remains competitive for businesses. Measures that encourage growth, such as further accelerating the reduction in the main rate of corporation tax, will help to achieve this.’

See also: Confidence key to women in business