September 12, 2011

UK business confidence sinks to two-year low

by Kay Mitchell

A survey among UK companies has found that confidence has fallen to a level not seen since June 2009.

BDO’s output index, which measures businesses’ predictions about their turnover, slumped to 93.6 last month from 95.0 in July – the lowest in 26 months.

Peter Hemington, a partner at the accountancy firm, said it is “worrying” to see the index fall to a two-year low.

However, the latest optimism index showed a small rise in business confidence last month with this index creeping up to 95.5 in August from July’s reading of 95.1.

This figure is still historically low and suggests the economy could contract in the next quarter.

Meanwhile, the manufacturing industry had particularly weak output expectations, with the index at 93.0 – also the lowest reading for two years.

According to BDO, weak demand at home and the slowdown in the global economy had weakened growth in the sector.

According to Mr Hemington, the data should “serve as a wake-up call” and action must be taken to avoid a contraction within the economy.

Recent data clearly show the economy appears to be faltering so many business groups are calling on the Bank of England’s Monetary Policy Committee (MPC) to consider a fresh round of quantitative easing (QE) – a scheme designed to boost the economy.

At last week’s policy meeting, the central bank opted to keep interest rates at the historic low of 0.5% and did not announce any fresh new measures with regard to its QE programme but many economists believe the bank will re-start the programme in the short-term.

Mr Hemington concludes: “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 round of quantitative easing, and it is heartening to see this stance becoming an increasingly credible position. The MPC must therefore give QE profound consideration if we are to arrest the forecasted economic slump.”

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