Business confidence among UK firms has slumped to a 26-month low, triggering fears that the economy will go into reverse over the next three months.
The gloomy outlook comes from the latest Business Trends report by accountants and business advisors BDO, and reinforces a spate of downbeat surveys over recent weeks pointing to tougher times ahead for UK businesses.
The Business Trends survey includes the BDO Output Index, which measures businesses’ short-run turnover expectations, and the Optimism Index, which predicts business confidence two quarters ahead. Both show declining levels of confidence as businesses struggle to see any upturn in their trading for the remainder of this – with the Output Index fall to its lowest level since June 2009.
BDO’s South West office partner Jim Brown said the predictions should serve as a wake-up call to policymakers to take action and avoid economic contraction.
“It’s worrying to see such a reliable growth indicator fall to a two-year low,” he said. “Those asking for a rise in interest rates are doing so prematurely. What is needed, and what we have long called for, is a further injection of quantitative easing (QE) so it is disappointing to see last week’s announcement by the MPC (the Bank of England’s Monetary Policy Committee) not to launch another round this month.
“The MPC must give QE3 profound consideration if we are to arrest the forecasted economic slump.”
The BDO Output Index fell to 93.6 in August, taking it below the crucial 95 mark that indicates growth. The Optimism Index is also teetering around this point for the third consecutive month with a similarly subdued figure of 95.5. This suggests that, at best, protracted, marginal growth will persist at the start of 2012.
BDO said despite the weak data pointing to poor growth prospects, they do not necessarily predict a return to recession – officially classified as two consecutive quarters of negative growth. The latest figures mirror those of the fourth quarter of 2010 when the Output Index was last beneath the 95 mark. However, the Optimism Index is now more buoyant than the Output Index, suggesting that any negative growth is likely to be short-lived.
