Business surveys suggest third recession is starting

 
Ben Southwood
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THE UK may be falling into its third recession in four years, marking the third dip since the credit crunch, two business surveys indicated this morning.

The UK returned to growth in the third quarter of 2012. However, British firms’ output weakened to 93.1 in the fourth quarter of 2012, accountants BDO said, from 93.4 in the second quarter. That is further below the crucial 95 mark that suggests a growing economy, adding to the evidence that the UK economy contracted again in the fourth quarter.

And the BDO forward-looking optimism index, which considers the next two quarters, fell even further, from 91.4 to 90.3, raising the possibility that the UK economy will contract for two quarters in a row – making this slump a triple-dip recession.

Even employment – which has resisted much of the gloom and rebounded to a record high – was on its way down, according to the BDO figures.

Separate data from Lloyds TSB, also out today, suggested that even the UK’s wealth-generating centre, London, was looking weak as 2012 ended and 2013 began.

The UK’s overall purchasing managers’ index (PMI) dropped from 50.2 in November to hit 50.0 in December – the level that indicates an economy is treading water.

London’s PMI suffered a bigger fall – bringing it from 51.9, which would point to moderate expansion – down to 50.3, suggesting business activity in the capital is barely moving forward at all.

“The generally subdued business picture seen throughout the final quarter of the year continued into December,” said Lloyds Banking Group’s David Oldfield, “with output expansion slowing among private sector businesses.”

But Oldfield saw some cause for optimism in the figures. “New order volumes continued to grow in December, providing hope that output will slowly move in the right direction in 2013.”

The data is the latest blow to the government’s hopes that 2013 will end this unprecedentedly long downturn, and see a return to sustainable growth.