OPTIMISM among British businesses has fallen to its lowest level in 21 years, according to a new survey that reignites concerns that the economy is lurching towards an unprecedented triple-dip recession.
Today’s gloomy report, from accounting firm BDO, flies in the face of better-than-expected growth in the UK’s dominant services sector last month and an upgrade to output estimates for the construction sector during the fourth quarter of 2012.
It also contrasts sharply with the latest purchasing managers’ index (PMI) from Bank of Scotland, which today shows the fastest rise in Scottish private sector activity for seven months.
Official figures released earlier this month showed Scotland emerged from recession in the third quarter of last year, and Bank of Scotland chief economist Donald MacRae said it appeared the growth momentum has been boosted by an expanding services sector.
He added: “This result suggests the Scottish economy not only started the year in growth mode but has maintained moderate growth throughout January.”
The service sector accounts for more than three-quarters of UK gross domestic product (GDP) and last week’s Markit-Cips report fuelled hopes that a triple-dip recession would be averted as the sector returned to growth following a shock contraction in December.
The UK economy shrank by 0.3 per cent in the final three months of 2012, which would put the country back in recession if it suffered a further contraction in the current quarter. BDO’s optimism index, which predicts business performance for the coming two quarters, sank to 88.9 in January – the eighth month in a row that the reading came in below the 95 mark that indicates growth.
The firm said: “This suggests the economy will struggle to grow in the first quarter which, following the recently-announced negative growth of the fourth quarter of 2012, poses the risk of a triple-dip recession.”
Despite the pessimistic outlook, there were signs of improved confidence for the labour market, with the survey showing the first increase in hiring intentions since April 2012, and optimism among manufacturing firms growing strongly.
The manufacturing sector has enjoyed two consecutive months of expanding output according to PMI reports from Markit-Cips, although the pace of growth slowed slightly in January, and economists warned that the industry still faces significant headwinds amid challenging domestic and international conditions.
Neil Craig, head of BDO in Scotland, called on government to do more to help businesses and give them the confidence to invest and expand. He added: “In spite of a strengthening labour market, business confidence continues to weaken, and improved hiring intentions are not translating into growth plans.”