UK Accounting Glossary
The capacity utilisation rate is the value of production capacity which is actually being utilised over a specific period of time. The capacity utilisation rate is measured in percentages and is adjusted to reflect production aptitude of various capital goods and natural resource producers, as well as factories, utilities and the like. Although lower capacity utilization rate yields potential for increased output, eighty-five per cent tends to be a critical benchmark value. Having surpassed the eighty-five per cent barrier, the capacity utilisation rate may signal a possibility of impending inflation. The capacity utilisation rate is an important measure of economic performance. Thus, the capacity utilization rate is carefully analyzed by the Fed. However, the capacity utilisation rate does not invariably provide the most accurate feedback on economic and market conditions. Hence, the capacity utilization rate is corroborated with other economic indicators to elucidate the overall economic posture.
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This glossary post was last updated: 4th February 2020.