British business output falls to lowest this year

BRITISH business output has fallen to its lowest level this year as consumers react to interest rate rises, a survey showed yesterday.

The BDO Stoy Hayward output index, which closely predicts movements in gross domestic product a quarter ahead, fell 0.3 points in August to 101.5.

The index has fallen sharply since its peak of 103.7 in April this year, implying a short-term fall in business confidence driven this month by poor retail sales.

However, longer-term business optimism remains buoyant despite the five interest rate rises since last November, according to the latest BDO Business Trends ‘poll of polls’ report.

The latest poll of polls also reveals inflationary pressures continue to rise at a significant rate, driven by record oil prices and increasing uncertainty regarding prices.

The BDO inflation index rose 1.2 points during August to 107.2, which suggests the rate of inflation as defined by the Government’s new Consumer Price Index will be around 2.7% in the final quarter of 2004 - well above the current level of 1.4% and higher than the Bank of England’s 2% target.

However, if oil prices stabilise and begin to fall, the index is likely to dip.

Peter Hemington, partner at BDO Stoy Hayward said: “There are conflicting signals out there.

“The consumer is feeling the pinch of interest rate rises and British business reports orders have slowed down. However, underlying optimism is still high and rising inflation looks to be a real worry. As a result, the Bank of England may look to raise interest rates again in the last quarter of this year.”