The UK could be heading for a double dip recession if current economic trends fail to improve, research indicated today.
The country’s economy looks set to contract during the final quarter of the year, with businesses becoming increasingly pessimistic about trading prospects, according to business services firm BDO.
The group said its optimism index, which reflects how UK businesses expect trading to develop two quarters from now, had fallen to 93.1 in August, down from 95.5 in July.
It said this level had not been seen since the deepest part of the previous recession between November 2008 and July 2009.
It added that it was the first time the index dropped below the crucial 95 mark since July 2009, suggesting the economy may contract during the final quarter of the year.
The group’s output index, which tracks businesses’ turnover expectations, also showed a marked drop during August, falling from 99.8 in July to 97.8, pointing to “sluggish” economic growth during the third quarter.
Peter Hemington, partner at BDO, said: “If quarter four 2010 does indeed turn out to be the start of a double dip, it certainly won’t be a merry Christmas for UK businesses.
“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 decisions as a result.
“Much of this comes from the hype around the Government’s spending cuts.”
But he said the real impact of fiscal consolidation was unlikely to be felt until 2012.
He said: “While 2011 may not be easy for a lot of businesses, the UK is set for a reasonable level of growth, with low interest rates expected to continue for some time to come and sterling likely to remain relatively low.”