The confidence of businesses has collapsed, according to a new survey of accountants. The UK Business Confidence Monitor (BCM) index has fallen from plus 8.1 in the third quarter of this year to minus 9.7 in recent weeks.
This represents the largest quarterly decline in the index, which is sponsored by the Institute of Chartered Accountants in England and Wales and the financial adviser Grant Thornton, since it began in 2003. The BCM index has been a reliable leading indicator of growth in recent years and this fall implies a 0.2 per cent contraction of the UK economy in the final quarter of 2011.
Confidence fell across all sectors of the economy, according to the survey. The most pessimistic managers were in the property, finance and insurance sectors. There was a fall in sentiment too in all UK regions, with a particular weakening of confidence in London, the South-east and Scotland. According to the survey, more than three-fifths of UK companies are now operating below capacity.
Scott Barnes, the chief executive of Grant Thornton, said: "The extent of negative sentiment in underlying business performance indicators, with confidence dropping across the UK's regions and sectors, is worrying. The slump in consumer demand and the ongoing crisis in the eurozone is taking a toll."
The gloomy picture was reinforced by figures from the Office for National Statistics yesterday which showed that manufacturing output increased by just 0.2 per cent between August and September. This was driven by the growth in the transport equipment industries, followed by an increase in the output of metals products.
But the manufacture of food, beverages and electrical goods contracted. The wider measure of industrial output, which includes oil and gas extraction, saw no change in September. Chris Williamson, the chief economist at Markit, said: "This is a disappointing rate of growth for a sector that was hoped to lead the UK's economic recovery, and growth looks set to weaken further in the final quarter of the year."
The Confederation of British Industry today forecasts that GDP growth will be 0.9 per cent in 2011 and 1.2 per cent in 2012, down from 1.3 per cent and 2.2 per cent respectively.
However, the National Institute of Economic and Social Research estimated yesterday that GDP grew by 0.5 per cent in the three months ending in October. And there is some good news in figures from the British Retail Consortium which show food price inflation slowing as a result of competition.
The BRC-Nielsen Shop Price Index saw a fall from 2.7 per cent annual inflation in September to 2.1 per cent in October, the lowest rate this year. Mike Watkins of Nielsen said: "Food retailers are looking to encourage loyalty of shoppers over the next eight weeks."