'Worst Of UK Recession Could Now Be Over'

UK firms increasingly believe the worst of the recession could be over, according to a new report.

An index of British companies' optimism indicates businesses think the pace of the economic slowdown could be starting to diminish.

Optimism has risen from 89.9 in January to 91.2 in April, research by accountants and business advisors BDO Stoy Hayward found.

But in a separate development, the CBI business group has warned manufacturers are seeing orders and output

dwindle at their fastest pace for 20 years.

The BDO index, which measures medium term business confidence, suggests the recession has troughed in both the UK and Eurozone.

More than 11,000 respondents took part in the survey, from companies employing about five million employees in total.

In its Eurozone Business Trends report, the organisation found businesses in the UK were also far more confident that deflation could be avoided than their European counterparts.

The UK inflation index, which measures expected inflationary pressures over the next three months, shows concerns about deflation have receded, with a rise from 86.6 in January to 91.5 in April.

In contrast, the index for Eurozone businesses plummeted from 97.1 in January to an all-time low of 88.4 in April, which BDO said showed firms "are now clearly very concerned about the risk of deflation".

In the UK, the official Consumer Prices Index measure it is still well above the Government's 2% target.

Figures for March showed it had dropped to 2.9%, having unexpectedly risen the previous month to 3.2%.

The Bank of England has slashed interest rates in recent months to a record low of 0.5% and begun a programme of quantitative easing (QE) in which £75bn is being injected into the economy.

In contrast, the European Central Bank (ECB) has cut the cost of borrowing at a more modest rate and has yet to adopt QE.

Both institutions will meet this week to set rates for the month.

Experts predict while the Bank of England will not make a change to its current half of one percent, the ECB will be forced to reduce its rates to a record low of 1%.

Financial News