Business Trends

UK business confidence remains high ahead of Autumn Budget

Business confidence remains high but at a crossroad amid looming Autumn Budget, ongoing challenges in the jobs market, and continued macroeconomic volatility.

• BDO Output Index dips to 98.19 as supply chain disruption and rising shipping costs impact manufacturing
• Significant growth opportunities for services with demand rising across technology, real estate, and leisure
• Employment Index drops for 15th consecutive month to lowest level since January 2013

 
UK business confidence rose slightly in September as companies pinned their hopes on further interest rate cuts this year, despite a weakening labour market, stubborn inflation and uncertainty around the new Labour Government’s first Autumn Budget. 

The BDO Optimism Index rose to 100.42, remaining above the 100-point mark for a fifth consecutive month – a strong indicator of confidence in the business community. However, this increased optimism stands in stark contrast to the challenges faced by many businesses. The BDO Output Index dropped by 1.52 points to 98.19 in September, as both the manufacturing and services sectors struggled to maintain momentum from the previous month.

Manufacturing, in particular, faced renewed job cuts due to subdued demand, while supply chain disruptions and rising shipping costs, exacerbated by the Red Sea crisis, have led to longer delivery times and higher raw material costs.

While Output in the services sector also dipped compared to the previous month, it remained elevated relative to the last two years and above the 95-point mark that indicates overall growth. This was largely fuelled by a rise in domestic demand, notably across the technology, real estate and leisure sub-sectors. However, businesses within the service sector have noted that uncertainty surrounding the upcoming Autumn Budget has prompted clients to delay their investment decisions.

The BDO Inflation Index eased slightly in September, dropping to 96.41. But whilst input prices decreased, the persistent rise in consumer prices – particularly for services - suggests that inflationary pressures could resurface in the coming months.

Meanwhile, the BDO Employment Index saw its fifteenth consecutive decline, dropping to 95.45 – its lowest point since January 2013.

According to the Office for National Statistics (ONS), UK job vacancies fell by 42,000 in the three months to August, marking the 26th period of consecutive decline. While unemployment has eased slightly, the volatility in labour market data signals that businesses are treading cautiously in their hiring decisions amid continued economic uncertainty.

Kaley Crossthwaite, Partner at BDO said:
“As the Autumn Budget draws closer, businesses are looking to the new Government for a clear roadmap. Optimism may prove fragile if policy decisions don’t deliver the necessary support and clarity, especially whilst the Employment Index shows signs of sustained weakness.

“Promising areas like technology offer a beacon of hope, but targeted government investment, especially around skills development, is needed to help stimulate jobs growth.”
 

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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.