BDO Warns of Winter Slump

The UK economy is facing a serious risk of contraction by the end of this year or the beginning of next, according to research fr om BDO.

The firm’s latest Business Trends report suggests that short-term trading prospects for UK businesses have continued to decline dramatically. BDO’s Output Index – which measures turnover expectations over the next three months - fell to 92.6 in October fr om 93.3 in September, its lowest level since June 2009.

It is the third consecutive month that the index has been below the 95.0 mark which signals on-trend growth, and BDO says this suggests that the UK economy could already be contracting.

The research highlights a slowdown in the services sector, wh the Output Index fell by a full point in October to 92.9. The Optimism Index also decreased, from 94.8 in September to 94.1 in October, which BDO says shows the service sector will continue to struggle into 2012.

The findings also indicate problems ahead in the labour market, wh BDO’s Employment Index fell to 93.4 in October from 95.9 in September. This marks the first time this year that the index has fallen below the crucial 95.0 mark, showing that hiring intentions across the board are likely to remain weak.

BDO’s Optimism Index - which predicts business confidence two quarters ahead – edged up from 93.4 in September to 94.1 in October, driven by the improving morale of UK manufacturers. However, the firm says prospects for Q1 2012 continue to look fragile as the index still trails below the 95.0 mark.

Peter Hemington, BDO partner, said: ‘Despite official GDP figures for Q3 exceeding expectations, the UK’s economic recovery remains sluggish and we could already be entering a period of negative growth. We urge the Chancellor to tackle the slowing recovery head on in his autumn statement. Supply side reforms, in particular reform of the tax system, will be crucial if the UK is to promote investment.’