The UK economy could be heading for a double-dip recession by the end of the year if the current economic trends continue, the latest Business Trends report by accountants and business advisors BDO warns.
Worryingly, long-term economic prospects aren’t showing signs of improvement, with BDO’s Optimism Index (which reflects how UK businesses expect to develop in two quarters) tumbling to 93.1 in August from 95.5 in July.
This level of pessimism hasn’t been seen since the deepest parts of the recession, and is the first time the index has fallen below the crucial 95 mark since July 2009. This suggests that the economy may contract in Q4 2010 if existing trends persist.
“If Q4 2010 does indeed turn out to be the start of a double dip, it certainly won’t be a merry Christmas for UK businesses,” comments Peter Hemington, partner at BDO,
“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 decisionps as a result. Much of this comes from the hype around the government’s spending cuts.”
BDO’s Output Index, which tracks UK businesses’ turnover expectations, also shows a marked drop from 99.8 in July to 97.8. This points to sluggish economic growth in Q3, expected to be well below the 1.2 per cent growth witnessed over Q2.
This lack of confidence is truly worrying for UK plc. As always, we’re not trying to be doom mongers, but is your business prepared for a double dip, should it happen?