BDO reiterates call for more QE as confidence falters

BUSINESS confidence has slumped to its lowest level in 26 months, according to a report by accountants BDO.

The firm believes the down-beat findings suggest an increased likelihood of a return to negative growth in the fourth quarter.

The BDO Output Index – which measures businesses’ short-run turnover expectations – fell to 93.6 in August, its lowest level since June 2009.

This takes the index below the crucial 95.0 mark that indicates growth. In addition, the Optimism Index, which predicts business confidence two quarters ahead, 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.

Jeff Jones, office managing partner at BDO LLP in Manchester, commented: “It’s worrying to see such a reliable growth indicator fall to a two-year low.  Our predictions should serve as a wake-up call to policymakers that action must be taken to avoid economic contraction.

“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 not to launch another round this month.

“The MPC must give QE profound consideration if we are to arrest the forecasted economic slump.”