Accountants and business advisory firm BDO warned that a rocky road lies head for the UK economy unless action is taken after the manufacturing sector dropped more than 26 points in its business confidence index, between February and June, to 90.1.

According to BDO, falling domestic demand coupled with the global economic slowdown were contributing factors to the drop.

Peter Hemington, partner at BDO, said the marked slump in business confidence within manufacturing was "a real concern" to the economy.

He stressed that a three-pronged approach was needed to help boost the economy, starting with the government.

"We urge the government to implement supply side reforms – particularly reform of the tax system, measures to encourage private sector investment in infrastructure and introducing more flexible employment laws to facilitate businesses' ability to react swiftly to volatile conditions," said Hemington.

The company added that while inflation remains high, low interest rates are essential to maintain momentum for growth by driving spending.

Finally, BDO has called on the Bank of England to continue to consider a third round of quantitative easing to provide some much needed impetus for growth.

"The weakness of the pound, which should make manufacturing exports more competitive, has failed to generate the hoped for returns. Perhaps this is because, with today’s integrated global supply chains, the benefits of the low exchange rate have been offset by higher input prices," Hemington added.