The economy is at serious risk of contracting before the end of the year as services firms falter and manufacturing declines again, a bleak survey claims today.
Accountants BDO’s output index, which measures turnover expectations over the next three months, fell in October to 92.6, the lowest level since the country was in the depth of recession in June 2009.
Official figures show the economy grew 0.5% in the third quarter but growth in the dominant services sector slowed more than expected in October while the manufacturing sector contracted at its fastest pace in more than two years.
BDO’s Bristol partner Jim Brown added: “Despite official GDP figures for the third quarter 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.
“It’s good to see that the Prime Minister has focused on breaking planning logjams to allow key infrastructure projects to go ahead. As evidence begins to accumulate over the next few months that the government has made necessary and substantial cuts in its current expenditure, we would like to see more focus on increasing capital spending.
“With the government able to borrow long term at less than 2.5% and construction costs having reduced in recent years, there has probably never been a better time to improve the UK’s ageing transport network. We would like to see radical measures considered – such as road pricing and privatisation – to attract private capital into the public infrastructure.”
Opinions on the future direction for the UK economy are mixed – although commentators and economists agree that it faces an extremely challenging few months.
Think tank NIESR said last week the economy faced a 70% chance of falling back into recession if the euro zone crisis is not resolved quickly. Some 3m UK jobs depend on trade with the EU.
However, a poll of economists by the Reuters news agency last month showed only 34% forecast that the country is heading for recession and CBI director-general John Cridland, speaking at the group’s South West annual dinner in Bristol last Thursday, said he believed the economy would avoid a further collapse.
BDO also said unemployment could rise further as jobs growth in the private sector remains weak.
Meanwhile, treasury minister Danny Alexander said in a BBC interview yesterday that the euro zone debt crisis was hitting business confidence but added that the extra flexibility of being outside the euro zone had been a “real strength” for the UK.
However, he admitted the economy faces a “long, slow road” to economic recovery.
The government will today launch a £500m fund to help boost housebuilding and infrastructure.
