Courtesy navigation

News

January 20, 2012

Business confidence falls as economists warn we’re already in recession

Small business confidence has slumped amid a warning that the UK may already have slipped back into recession, according to forecasts from the Ernst & Young Item Club.

The independent think tank said that gross domestic product (GDP) contracted in the final quarter of last year and will fall again in the first three months of 2012. The definition of recession is at least two consecutive quarters in which the economy shrinks.

In its report, the Item Club predicted GDP growth of just 0.2 per cent this year, 1.8 per cent in 2013 and 2.8 per cent in 2014.

Professor Peter Spencer, Item Club’s chief economic adviser, said that figures for the last quarter of 2011 and the first quarter of 2012 “were likely to show that we are back in recession”, and that signs of improvement would not appear until the summer.

“But it’s not going to be a repeat of 2009 – we are not going to see a serious double-dip,” he said.

However, the British Chambers of Commerce said a recession “was not a foregone conclusion” despite the gloomy outlook.

But the business lobby group warned that many small firms would struggle in the first half of the year, particularly exporters and those dependent upon consumer spending.

Meanwhile, the latest index of business confidence produced by the Federation of Small Businesses (FSB) fell by more than 15 points in December 2011 to minus 24.5, below the level seen in early 2010.

Indicating that many small firms already expect the worst, the FSB survey of more than 1,600 business owners found that 40 per cent believed the economy would deteriorate in the next three months, a rise from 34 per cent in the previous survey, while just 25 per cent expected the economy to improve.

“Things are going to get worse before they get better,” said John Walker, national chairman of the FSB. “But we are hopeful that as the inflationary pressures lessen in 2012, businesses will become more confident.”

He added that falling inflation should benefit small firms, with lower costs for raw material boosting margins and interest rates likely to stay low.