Britain could be re-entering
recession by the end of the year if current economic trends fail to improve,
new research indicates.
Increasing pessimism about trading
prospects and fears surrounding spending cuts mean the economy looks set to
shrink again during the final quarter, according to accountancy BDO.
The group said its optimism index
has fallen to levels not seen since the deepest part of the previous recession
between November 2008 and July 2009.
The measure, which reflects how UK
businesses expect trading to develop two quarters from now, fell to 93.1 in
August, down from 95.5 in July.
It is the first time the index
dropped below the crucial 95 mark since July 2009, suggesting the economy will
contract during the October to December quarter.
The group’s output index, which
tracks businesses’ turnover expectations, also showed a marked drop during August,
falling from 99.8 in July to 97.8, pointing to “sluggish” economic
growth during the third quarter.
Peter Hemington, partner at BDO,
said: “If quarter four 2010 does indeed turn out to be the start of a
double dip, it certainly won’t be a merry Christmas for UK businesses.
“What’s so disappointing is
that businesses seem to be convincing themselves that things are going to get
really tough in 2011, and are deferring new hires and investment decisions as a
“Much of this comes from the
hype around the Government’s spending cuts.”
But he said the real impact of
fiscal consolidation is unlikely to be felt until 2012.
He said: “While 2011 may not
be easy for a lot of businesses, the UK is set for a reasonable level of
growth, with low interest rates expected to continue for some time to come and
sterling likely to remain relatively low.”