UK business confidence is improving, driven largely by increased optimism in the service sector, but the outlook for manufacturing looks bleak, according to research from BDO.

The firm's latest Business Trends shows both the overall output and optimism indices moving towards the crucial 95 mark which indicates growth. The output index hit 94.1, a monthly uptick of 1.1 points and the highest reading for 10 months, while the optimism index moved up 0.8 points from March to reach 93, the highest it has been since October 2012.

BDO's report shows these improvements were down to the service sector, where confidence moved up substantially in April. The services output index, which predicts short-run turnover expectations, rose to 94.9 from 93.2 in March.

The services optimism index, which predicts business performance two quarters ahead, also went up, increasing to 94.1 from 93.2 last month.

In contrast, the output index for manufacturing fell in April this month from 92.4 to 90.8, while the optimism index for manufacturing moved up by only 0.1 to 88.

In its analysis, BDO says the divergence between the expected fortunes of the services and manufacturing sectors can be partly explained by the impact of increasing inflationary pressures on UK businesses. BDO's inflation index rose to 103.4 in April, up from 102.4 in March - the highest score since February 2012.

Peter Hemington, BDO partner, said: 'The manufacturing sector is a particular concern. If it is serious about its plan to rebalance the UK economy, we continue to believe that the government could do more to help UK manufacturing, particularly by encouraging both lending and investment in the sector.'