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Business confidence index predicts economic contraction into 2013

Optimism among UK businesses has fallen to a level which suggests there will not be economic growth in the UK at the start of 2013.

According to BDO’s latest Optimism Index, which predicts business performance two quarters ahead, UK business confidence fell to 89.1 in August, 5.9 points below the 95 level which indicates a return to growth.

It is the sixth consecutive month that the data has registered a drop, with a four-point drop from 93.1 in July.

Business confidence is now at its lowest level since the Business Trends indices began in 1992.

BDO’s Output Index - which predicts short-run turnover expectations - has also fallen, to 90.8 in August from 93.9 in July, reaching its lowest point for 40 months.

Peter Hemington, BDO partner, said: “The sluggish economic environment continues to elicit zigzagging business sentiment.

“The Government’s efforts to cut current spending may not be working out quite as planned, though we believe that the strategy in essence remains correct.

“But we have long been concerned that the cuts to investment spending were too drastic and that steps to redress this have been taken too slowly.We welcome positive signs that the Government now wishes to boost its investment in UK infrastructure.”

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