The UK economy is teetering on the brink of contraction as businesses’ turnover expectations fell further in December, a new report has claimed.

The latest Business Trends report by accountancy firm BDO said the outlook for the economy remained bleak but that easing inflationary pressures could help prevent the UK ‘from falling off the precipice’.

BDO’s output index declined for the seventh consecutive month to 91.4 in December last year, from 92.5 in November.

The index measures turnover expectations three months ahead and has stayed below the 95.0 mark, which indicates growth, since July 2011.

Its optimism index, which predicts business confidence in two quarters’ time, also dropped from 92.5 in November to 91.5 in December.

However, BDO’s inflation index came down for the fifth consecutive month as inflationary pressures started to ease. The report showed that December’s figure was only slightly higher than at the start of 2011 – a 1.6 point increase.

Peter Hemington, partner at BDO, said the UK economy had reached a ‘crunch point’ and called on the government to respond ‘decisively’ in order to avert a period of contraction.

He commented, ‘To arrest the forecasted slump, we urge the Bank of England to consider a further round of quantitative easing, and we encourage the banks to continue to step up their lending to UK businesses.’