Business Trends
Business Trends
Service sector slowdown drags on UK output growth
- Service output fell at steepest rate since September 2022 amid higher costs, weaker demand and poor weather
- Overall business output slips back below long-term trend after brief rebound in August
- Employment Index at fresh 13-year low as firms delay hiring decisions in run-up to Autumn Budget
The latest monthly Business Trends report reveals the UK’s post-summer economic rebound has been short-lived.
BDO’s Output Index declined to 98.53 in September, down from 101.21 in the previous month and falling below the 100-point threshold which represents long-term average growth levels over the past 15 years. After exceeding 100-points in August for the first time in over three years, September’s decline signals that UK business momentum has once again stalled.
This decline was largely driven by the services sector, where output fell from 102.06 to 99.07, marking the sharpest month-on-month fall since September 2022, when UK inflation had just hit double digits. The downturn reflects a combination of ongoing pressures from April’s payroll tax changes, dampened demand from economic uncertainty, and wet weather conditions in September, all of which collectively weakened consumer activity.
Manufacturing output also slipped slightly from 94.53 in August to 94.28 in September, as supply chain disruptions and lingering trade uncertainty constrained production.
Looking ahead, growth is likely to remain muted, as high inflation, subdued consumer demand and a cooling labour market leave little room for interest rate cuts needed to boost recovery.
Business outlook hinges on Budget as Employment hits 13-year low
Wariness ahead of the Autumn Budget weighed on businesses in September, as they stayed in “wait mode” ahead of potential policy announcements. The labour market continues to unwind with the BDO Employment Index –which tracks wider market trends including headcount, vacancies and hiring expectations – remaining on its general downward trend seen since late 2023.
As firms remain cautious amid payroll costs and policy uncertainty, BDO's Employment Index fell to 93.90 in September, representing another 13-year low. Vacancies and headcount expectations are both down, with the data showing business’ expectations for additions to headcount at their lowest since the pandemic.
Against a challenging backdrop for business, BDO’s Optimism Index still rose in September to 93.38, up from 93.18 in August, its second consecutive monthly increase. Gains were seen across both manufacturing and services, with manufacturing confidence reaching its highest level since October 2024. This was a result of improved confidence in order books and external investment announcements such as the US-UK Technology Prosperity Deal. Manufacturing businesses remain hopeful that leanness in inventories will pave the way for more consistent production levels.
Scott Knight, Head of Growth at BDO, said: “The uptick we saw in August was a false dawn. While there is a kernel of hope amongst the mid-market, it is fragile, and they need clarity from the top before they can take any meaningful investment risks. Fiscal signals will be crucial in the run up to the Budget with all eyes on the Chancellor to deliver the so called ‘Securonomics’ needed to create an environment for longer term business planning.”
The chart below shows a sample of recent data from the Business Trends report. Any scores below 95 represent a contraction or a negative growth rate.
What is Business Trends?
The Business Trends report is one of the key monthly indicators of the performance of the UK economy, and provides an accurate and up-to-date picture of the environment that businesses are facing.
Business Trends covers more than 4,000 respondents from companies employing approximately five million employees across the UK. The report includes separate indices for services and manufacturing sector optimism and output, as well as indicators for UK inflation and employment.
Since 1992, the BDO Business Trends report has provided the most representative monthly measure of business output and optimism available. The results can be used as indicators of turning points in the economy as well as, because of their method of construction, leading indicators of the rates of inflation and growth.
See a sample Business Trends report
How is Business Trends prepared?
Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research (CEBR), a leading independent economics consultancy.
Survey's contributing to Business Trends
Four indices covering output, optimism, inflation and employment, are calculated by taking a weighted average of the results of the UK's main business surveys, including:
- CBI Industrial Trends Survey
- CBI Monthly Trends Enquiry
- Bank of England Agents' summary of business conditions
- Markit/CIPS Manufacturing and Services PMI data
Taken together, these surveys cover more than 4,000 different respondents from companies employing approximately five million people in the UK. Collectively, they comprise the most representative measure of economic indicators and business confidence available. The respondents cover a range of different industries and business functions to deliver a comprehensive picture of the general economic outlook.