Business confidence slumps to 26-month low claims new study
BUSINESS confidence has reached a 26-month low, suggesting an increased likelihood of a return to negative growth during the final quarter of the year, new data suggests.
The latest Business Trends Indices report by BDO suggests Q4 of 2011 could well mirror the final three months of 2010 when against expectations, growth fell.
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.
Despite the weak data pointing to poor growth prospects, BDO said it did not necessarily mean a return to recession – or two consecutive quarters of negative growth.
It said this month’s figures mirror those seen throughout Q4 2010, where output wavered beneath the 95.0 level. Importantly now, however, the Optimism Index is more buoyant than the Output Index, suggesting that negative growth is likely to be short-lived.
Mark Anslow, office managing partner for BDO in Birmingham, said: “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 QE3 profound consideration if we are to arrest the forecasted economic slump.”
