OUTPUT among firms is to decrease, according to a report by accountants and business advisers BDO LLP.

Its business trends report showed the output index, which shows how order books are expected to develop over the next three months, has fallen to 94.9 in June from 95.4 in May.

The report said the figure is now dropping below 95, the point of contraction.

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The slump leaves output at a new four-year low and underlines the possibility of a weak second quarter following a positive first quarter for the Scottish economy.

The firm’s optimism index, which shows how firms expect their order books to develop in six months, signalled “a much brighter future”.

It increased to 102.9 in June, up from 102.8 in May. The eight-point difference between the optimism and output indices is the largest ever on record.

Experts say this implies Scottish and UK businesses are expecting a flurry of business activity following the political uncertainty in June, which left many businesses delaying investment plans.

BDO’s inflation index dropped from 105 to 104.8 in June but inflation remains a key concern for households, with consumer price inflation currently outpacing wage growth.

Analysts say it is eroding household budgets and having a negative effect on industries such as retail and hospitality.

Martin Gill, partner and head of BDO LLP in Scotland, said: “Since the financial crisis, the economic recovery has been reliant on consumer spending and a growing services sector.

“For the past two years now we have witnessed both a decrease in the performance of the services sector as well as a reduction in consumer spending, which has become more pronounced after the devaluation of sterling.

“To deal with the pressures of rising inflation and to accelerate economic growth, monetary policymakers are seriously considering raising interest rates.

“However, given the economy’s clear weakness and the continuing uncertainty we are going to see from Brexit, to raise interest rates at the moment would be a major mistake.”