Slowing global demand could lead to deflation - BDO
UK economic growth could be in jeopardy as weakening global demand indicates that deflation could set in in the new year, according to new research by BDO.
The BDO Inflation Index, which predicts businesses' cost expectation for the next three months, fell for the sixth consecutive month in October to 96.2, above the 95.0 zero inflation mark.
The report warned that inflation could turn negative by February 2015, with inflation for consumers also at historically low levels.
"The global economy has slowed and as a result the UK could become caught up in the same deflationary conditions the Eurozone is currently experiencing," said Andrea Bishop, audit partner and head of BDO in South Wales and South West England.
"Policymakers need to realise that there are far more significant downside risks for growth than there were three months ago. Action is needed now. Interest rate rises certainly should be put on hold, housing market controls have now done their job and the government's intentions to boost infrastructure spending are most welcome, if not enough."
Despite this, confidence among companies remains high, with the BDO Output Index declining moderately to 103.2 from 103.3.