The faltering powerhouse services sector is pushing the UK economy to the brink of a double-dip recession, according to a new business report.
The economy faces a serious risk of contraction as early as the fourth quarter or first three months of 2012, the latest Business Trends report by accountants and business advisors BDO found.
BDO issued the warning after its Output Index - which measures turnover expectations over the next three months - fell to 92.6 in October from 93.3 in September, its lowest level since June 2009.
It is the third consecutive month that the index has been below the critical 95.0 mark indicating on-trend growth, showing that the UK economy could already be contracting.
Peter Hemington, partner at BDO LLP, said: “We urge the Chancellor to tackle the slowing recovery head-on in his autumn statement.
“Supply side reforms, in particular reform of the tax system, will be crucial if the UK is to promote investment.”
Gross domestic product (GDP) grew at a slightly better-than-expected 0.5 per cent in between July and September but economists warned the figures overstated the underlying health of the economy.
There was some cheer from BDO as its Optimism Index - which predicts business confidence two quarters ahead - edged up from 93.4 in September to 94.1 in October, propelled by the improving morale of UK manufacturers.
However, prospects for the first quarter of 2012 continue to look fragile as the index still trails below the 95.0 mark.
The faltering economic recovery can be largely attributed to a slowdown in the crucial services sector, BDO said, which makes up three-quarters of the UK’s economic output.
The Output Index for the services sector fell by a full point in October to 92.9 while the Optimism Index also decreased, from 94.8 in September to 94.1 in October.
A further cause for concern is the worsening situation in the labour market, where BDO’s Employment Index fell to 93.4 in October from 95.9 in September.
This is the first time this year that the index has fallen below the crucial 95.0 mark, showing that hiring intentions across the board are likely to remain weak.