Businesses predict that recession will be worse than early nineties

New figures from the latest Business Trends report by accountants and business advisers BDO LLP, confirm that businesses are seeing their order books collapse and now expect the current downturn will be worse than the early 1990s.

The report’s Output Index, which is a measure of order book strength and short run turnover expectations, has fallen from 91.3 in November to 89.0 in December. The index is scaled so that 100 equates to trend annual growth of 2.5 per cent, 110 equates to the late 1980s boom and 90 equates to the trough of the previous economic cycle in 1991.

The fall below the 90 mark signifies that businesses now expect this downturn to be worse than the recession of the early 1990s.

Peter Hemington, Partner at BDO, says: “With order books for UK businesses collapsing and volumes for the next quarter rapidly diminishing, businesses now have concrete evidence that the downturn will be worse than it was in the early nineties.

“The reality is that things are now very tough indeed. And while in the current environment many businesses need all the help they can get, with interest rates already so low further reductions in interest rates will help little. The key focus of public policy now has to be to improve substantially the flow of credit to UK businesses by whatever means are available.”
 
The Business Trends report is compiled by taking a weighted average of the results of all the UK’s main business surveys carried out between 25 November and 25 December 2008. Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees.

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For more information or for the full report, please contact Kara Hill at Blue Rubicon on 020 7260 2700, or Dee Crooks at BDO on 0207 893 2761.

Notes to editors:

Methodological notes:
The BDO Business Trends Report Indices are calculated by taking a weighted average of the results of all the UK’s main business surveys carried out during the last month.

The BDO Monthly Business Trends Indices are prepared on behalf of BDO by the centre for economics and business research (cebr).

Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.

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