The Government was today urged to reinvigorate the UK economy by introducing supply side reforms, particularly changes to the tax system, to head off a full-scale collapse in business confidence.
The plea, which come from accountants and business advisors BDO, coincided with this morning’s dire unemployment figures.
BDO said they also want to see the introduction of measures that encourage private sector investment in infrastructure. The firm said it based its views on results of its latest Optimism Index, which point to negative growth in the first quarter of next year. The index stands at 93.4, the first time it has dipped below 95 since January this year.
In fact UK business confidence is at a low point not seen since the end of the recession, according to BDO. Optimism levels in both the manufacturing and service sectors are below the crucial 95 mark that indicates growth for the first time since July 2009.
The Optimism Index, which is part of the BDO’s Business Trends report, predicts business confidence two quarters ahead – and its latest findings show, therefore, that neither the manufacturing nor service sectors can be relied upon to lead the economy’s recovery.
In particular, confidence in the manufacturing sector has fallen from 116.4 to 88.2 – a huge 28.2 points – in just seven months.
Pessimism has been compounded by the BDO Output Index, which measures UK businesses’ short-run turnover expectations. This fell to 93.3 in September, again its lowest level since the summer of 2009.
Growth prospects for the UK labour market are equally bleak – the BDO Employment Index fell for the fourth consecutive month in September and there is little sign of a reversal of this trend, as hiring intentions in the manufacturing and services sectors indicate further headcount reductions ahead.
BDO Bristol partner Jim Brown said: “Businesses’ hiring intentions point to more job losses ahead which, coupled with tumbling optimism and output, indicates tough times in early 2012. Given that the latest ONS growth figures have been revised downwards, this concern is even more acute.”
Urging supply side reforms and measures to encourage private sector investment in infrastructure, he added: “We have been calling for expansionist policy from the Bank of England for some time and are pleased that the Government has pledged to inject a further £75bn into the economy. Given the data we’re seeing, this will provide a much-needed and timely boost. In addition, we welcome the Chancellor’s proposed credit-easing scheme. However, given that any effects are not likely to be felt until 2013, the more immediate measures to salvage the UK’s ailing economy are imperative.”
