UK economy 'on brink of recession'

The UK economy is "teetering" on the edge of contraction, accountany firm BDO has warned. 

The company's latest figures showed businesses' expected turnover continued to decline in December.

BDO's Output Index, which measures turnover expectations three months in advance, fell from 92.5 in November to 91.4 the following month. The Index has been below the crucial 95 mark that indicates growth since July 2011.

In addition, BDO's Optimism Index, which predicts business confidence, dropped to 91.5 in December from 92.5 in November.

However, figures showed inflation is easing for the fifth consecutive month, providing a small glimmer of hope for UK consumers.

Peter Hemington, BDO partner, said: "As our data shows, there are areas for cautious optimism in the year ahead but it is apparent that the UK economy has reached a crunch point. The government must respond decisively if the UK is to avoid a period of prolonged contraction."

"To arrest the forecasted slump, we urge the Bank of England to consider a further round of quantitative easing, and we encourage the banks to continue to step up their lending to UK businesses," he said. 

He added: "We also want to see the government introducing measures in 2012 that encourage private sector investment in infrastructure. We welcome the investment in high-speed railways, but want to see more immediate measures introduced – 2026 is a long way off."

The report follows news that the Bank of England's Monetary Policy Committee will make no change to its current £275bn programme of quantitative easing but economists predict rates could be increased from as early as next month.