Manufacturing optimism levels at seven month high

The optimism index, which is a measure of business confidence and is a strong predictor of economic growth two quarters ahead, rose to 87.4 in May, up from 86.4 in April. This is extremely positive given that the index reached a 12 year low (79.4) in March. The index is scaled so that 100 equates to trend annual GDP growth of 2.5 per cent, 110 equates to the late 1980s boom and 90 equates to the trough of the previous economic cycle in 1991. Further bolstering this news was the fact that output levels, which calculates order book strength and short run turnover expectations, also increased for the second consecutive month from 83.6 in April to 86.0 in May – the biggest monthly increase since December 2007. Tom Lawton (pictured), head of manufacturing, at BDO said: “It’s still too early to call the bottom of the market, but these are certainly some positive results and could suggest that things are beginning to look up for the UK’s manufacturers. “The manufacturing sector was one of the first to feel the effects of the credit crunch when order books collapsed, however, anecdotally we’re now hearing that manufacturers are looking to re-stock and believe that they could be looking at the bottom of the cycle.”