Businesses in the UK cut their expenditure during February, according to a new report.
Research by accountancy and services group BDO noted that its inflation index had fallen into deflationary territory for the first time in six years. The company noted that business costs had been affected significantly by the drop in oil prices, which have been falling at a rapid pace since June. However, the fall in costs will allow firms to invest in future ventures.
BDO's Business Trends report for February saw the 'Inflationary Index' fall to 94.7 – a figure below 95 indicates deflation. The group's 'Output Index' also grew from 102.9 to 103.1, remaining above the 100 mark which highlighted expansion. It provides a stimulus for businesses across the UK as they outline their strategies for the new financial year, starting in April.
Andrea Bishop, audit partner and head of BDO in the south-west and South Wales, said: "Businesses are well placed to take advantage of falling costs, to help them to bed in growth.
"Lower input prices will help entrench the recovery, as consumers gain more spending power. However, the economy still has substantial spare capacity. Spending on infrastructure is one of the most effective ways to push the economy back toward full employment and keep the recovery on track."
Improving UK economy
The boost in business confidence comes as the UK's economy has been steadily improving. Recent figures from the Office for National Statistics (ONS) showed that the nation's economy grew by 2.6 per cent in the past year, its fastest pace since 2007. It was a 1.7 per cent boost on 2013 and was helped by a 0.5 per cent rise during the last three months of 2014.
Despite the positive figures, economists were cautious about the future due to the slowdown in growth from the 0.7 per cent recorded in the third quarter of the year.
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