UK economy 'on brink of recession'

Stock marketThe UK economy is likely to be declared in recession, according to professional services firm BDO, after a survey of companies' turnover hopes fell for the eight month in a row.

BDO's Output Index slipped to 91.2 in January from 91.4 in December, where 95 indicates growth, which points to the overall economy contracting in the first three months of the year, after it shrank in the last quarter of 2011 by 0.2%. A recession is two consecutive quarters of economic decline.
The survey comes amid mixed signals for the economy as many economists and forecasts suggest the UK will fall into recession this year, while more recent surveys for January such as industry data for manufacturing and services have been better than expected.

Peter Hemington, partner at BDO, said: "Undoubtedly, prospects for growth continue to be fragile - as the UK has already very likely entered a technical recession and the situation in the eurozone remains difficult to predict."
However, the survey also reported an upturn in business confidence suggesting that the UK economy will stand on firmer ground from mid-2012 onwards.

The downturn is subsequently likely to be shallower than in 2008 to 2009, BDO added, as the Optimism Index, which forecasts business confidence two quarters ahead, rebounded in January to 94.1 from 91.5 in December.

The increase in business confidence was broad-based with the services and manufacturing sector showing a boost to optimism.

Mr Hemington said: "The marked increase in business confidence is an encouraging sign pointing to better times ahead. It is particularly reassuring to see a broad based boost in optimism across key sectors such as manufacturing and the all-important services sector."

A Treasury spokeswoman said: "The Office for Budget Responsibility predicted that there would be a single quarter of negative growth in the final three months of 2011. The revisions to their forecast were the result of last year's high inflation and the continued uncertainty in the Eurozone.

"The global economic outlook is certainly challenging but there are reasons to be optimistic: inflation is coming down, business surveys show the service and construction sectors strengthening, and the Government's credible fiscal plan is helping keep UK interest rates at record lows."

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