UK business confidence plummets on talk of cuts

UK business confidence is sinking like a stone, its descent apparently hastened by ministers' talk of the need for cuts in public spending, according to a new report.

The latest Business Trends survey from accountants BDO said its 'Optimism Index' had fallen by more than six points, a slump described by BDO partner Peter Hemington as "unprecedented".

Coming as the government's Office for Budget Responsibility (OBR) forecast that economic growth in 2011 would come in at 2.6 per cent, versus the predictions of between three and 3.5 per cent from the previous Labour government, Hemington said his firm's findings pointed to a "significantly weakened outlook for the recovery during the second half of 2010 and into 2011".

"The government has understandably been keen to emphasise the extent of the sacrifices that we all will need to make as public borrowing is brought under control," he said.

"But there is a significant risk that the rhetoric has begun to impact on business confidence, and fears of the economic impact of spending cuts may be causing businesses to rein back on growth plans.

"It will be important for the government to tread a path between acting tough to cut the deficit while reassuring businesses that it is committed to restoring strong, private sector-led economic growth."

George Osborne, the Chancellor of the Exchequer, is to announce his emergency Budget on Tuesday of next week.

Press reports at the weekend suggested Osborne could announce a five per cent rise in alcohol duty, with VAT going up 2.5 percentage points to 20 per cent.