BDO Business Trends Report reveals record drop in business confidence
The BDO has called for a greater revision of the downwards growth forecast for 2011, as its latest report indicates a record drop in business confidence.
The findings suggest the Office of Budget Responsibility (OBR) did not go far enough in its alteration of the government growth forecasts yesterday.
The OBR dropped its prediction for the 2011 economy expansion to 2.6 percent from the three to 3.5 percent estimate provided in Labour’s last budget, but the BDO claimed a revision to between 1.5 and 2.5 percent was necessary.
This claim came after the BDO Opimism Index showed a massive drop of 6.3 percent, down from 103.3 in April to 97 in May. This was the largest recorded drop in confidence since the index began in 1995.
BDO said the results suggest a significantly weakened outlook for recovery into 2011 and predicted that, as a result, economic growth is likely to remain below an annualised 1 per cent in Q4 2010.
The organisation suggested that the severe drop in consumer confidence could result from a fear of the future among businesses, stemming from the expected effect of public sector cuts on the economy and fears of contagion from the sovereign debt crisis in Eurozone.
BDO LLP partner Peter Hemington said: “The government has understandably been keen to emphasise the extent of the sacrifices that we all will need to make as public borrowing is brought under control. But there is a significant risk that the rhetoric has begun to impact on business confidence, and fears of the economic impact of spending cuts may be causing businesses to rein back on growth plans.
“It will be important for the government to tread a path between acting tough to cut the deficit while reassuring businesses that it is committed to restoring strong, private sector led economic growth.”