BDO warns on economy as Item club says prices may ease

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Media captionPeter Hemington, a partner at accountancy firm BDO, warned of the risks to the UK economy.

The UK economy could start contracting this year due to the weakness of the service sector, according to the accountancy group BDO.

The group said its output index - based on a range of survey data - fell to 92.6 in October from 93.3 in September.

The index measures company turnover expectations over the next three months.

In a separate report Ernst and Young's ITEM club forecast inflation would fall next year due to weak global growth.

However the same report warned that inflation was likely to pick up again, as the economic recovery took hold and companies sought to restore profits.

"The good news is that food, oil and petrol prices will all start to come down next year," said Neil Blake, senior economic adviser to the ITEM club.

"However, the five-year outlook is far less rosy as inflationary pressures begin to bite once again. This will be compounded by weak wage growth," due to high unemployment, he warned.


The BDO survey also reported a worsening in the labour market.

The employment index fell to 93.4 in October down from 95.9 in September.

Any rating below 95 indicates performance below the normal trend.

The index did, however, record a slight increase in optimism - especially in the manufacturing sector.

"Despite official GDP figures of Q3 [growth] exceeding expectations, the UK's economic recovery remains sluggish and we could already be entering a period of negative growth," said Peter Hemington, a partner at BDO.

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