Triple-dip possible as business confidence falls to 21-year low

Monday, 11 February 2013 04:13

By Ben Salisbury

A new business survey by accounting firm BDO suggests confidence amongst UK businesses has hit a 21-year low.

The survey predicts business leaders optimism for the next two quarters and the latest reading shows that a triple-dip recession remains a possibility.

The report suggests the government needs to do more to introduce measures to “expedite growth.”

BDO’s survey shows that in January, its Optimism Index fell to 88.9, from 90.3 in December and well below the score of 95.0 that indicates growth in the economy. This is the lowest score recorded since the survey was launched in 1992.

BDO said: “This suggests the economy will struggle to grow in the first quarter of 2013 which, following the recently announced negative growth of the fourth quarter of 2012, poses the risk of a triple-dip recession."

The survey indicates that the UK could fail to avoid falling into a triple-dip recession after the economy contracted in the final quarter of 2012. If the economy contracts in the first quarter of 2013, then it will technically be in a triple-dip recession.

This is the eighth consecutive month that the index has remained below the 95.0 mark.

The survey measures business confidence for the next six months and suggests that the UK economy will struggle to eke out any growth in the first quarter of 2013.

It is in contrast to some positive news that came last week from the services sector which enjoyed healthy growth in January.

The British Retail Consortium also reported that retail sales were strong in January and were not unduly affected by the snow.

The result of BDO’s Optimism Index survey is also in contrast to the upbeat labour market. The latest unemployment figures show that the unemployment rate fell to 7.7 per cent in the three months to November, down from 7.9 per cent in the previous quarter.

Again, last week a survey by the Recruitment and Employment Confederation (REC) and KPMG revealed that the number of job vacancies rose to a 21-month high in January.

However, BDO also produces an Employment Index that measures hiring intentions over the next six months and this is more in line with other recent economic data showing some signs of improving confidence. It rose to 95.1 from 93.0 in December and taking the index above 95.0, the level that indicates growth for the first time since April 2012.

Peter Hemington, a partner at BDO LLP, said: “In spite of a strengthening Labour Market, business confidence continues to weaken, and improved hiring intentions are not translating into growth plans.

"It seems the damaging effects on businesses of five years' zigzagging economic growth has left them wary of making concrete plans for expansion and resigned to the 'new normal' of economic stagnation."

"To end this cycle, it is imperative that the government implements plans to expedite growth.

"Without growth incentives, we will continue to see UK businesses reluctant to invest and expand, which poses a grave threat to the UK's economic recovery."

Prospects for the manufacturing sector also increased with both their Output and Optimism Index growing. Its Output Index rose from 90.6 in December to 92.3 in January and its Optimism Index rose from 91.9 in December to 95.2 in January

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