‘Government must encourage firms to keep investing’

The latest Business Trends report from accountants and business advisers BDO says there is “underlying fragility” in the UK economy, despite the fact that many entrepreneurs are feeling confident. BDO’s Optimism Index, which predicts business growth six months ahead, held firm this month at 104.7.

BDO’s Output Index rose to 104.3 this month from 103.7, indicating that growth could speed up in the latter half of 2015 following a weaker start to the year.

However, sustained growth depends on companies converting their confidence into the capital expenditure needed to boost productivity, the report said. Investment in skills and equipment could help to tackle stagnant productivity levels, boosting business output and growth. BDO would like to see the Government permanently increase the annual investment allowance (AIA) to £5m, giving an incentive for businesses to invest in the capital assets that will drive growth, and give businesses the confidence to plan ahead.

It should also consider a VAT zero rating of supplies to companies that export, the report said. The UK currently allows manufacturers to zero rate their exports but not their suppliers

Terry Jones, the head of BDO in Yorkshire, said: “It is encouraging to see that businesses are feeling optimistic about the coming months in the hands of a new government, but the confidence that counts is the confidence that converts to businesses actually investing.

“Our new leaders must help by putting tangible measures in place that will encourage businesses to invest in training or research, technology and equipment to help improve productivity.”