Business Trends

11 July 2022

Buoyant labour market defies expectations as business optimism and output decline

  • BDO’s Output Index has reached a 17-month low, sparking a fall in the Optimism Index, as fears of a recession hamper confidence and productivity
  • BDO’s Employment Index has remained resilient, surpassing pre-pandemic levels to reach its highest reading since January 2019

The BDO Output Index has reached its lowest level since February last year – when productivity was hampered by a third national lockdown – and could experience further decline. The Output Index fell 2.66 points in June to 97.73 and now sits well below 100, which denotes long-term average growth. This decline was driven by low activity in the manufacturing and services sectors due to supply chain disruption, higher imported material costs and weakened consumer spending power.

Waning productivity has led to a corresponding dip in the Optimism Index for the third month in a row, as the decline in output and fears of a recession continue to affect business confidence. The index experienced a decrease of 0.10 to 101.83, its lowest reading since April 2021.

The labour market has remained resilient in the face of these downturns, however, with the Employment Index surpassing pre-pandemic levels to reach its highest figure since January 2019. June saw the eighth consecutive monthly increase for the Index, which now stands at 114.56. 

The Inflation Index reached an all-time high of 117.85. This was largely driven by a 3.05-point increase in the Input Inflation subindex, reflecting the continued upward pressure on input prices as a result of shortages, supply chain disruption and a weakening currency.

Commenting on the indices, Kaley Crossthwaithe, Partner at BDO LLP, said:

“The continued falls in output and confidence provide a stark warning of the challenges businesses face in the coming months, with a perfect storm of staffing shortages, an expected increase in the energy price cap, and weakened consumer spending.

“Despite its recent resilience, inflationary pressures and fears of a recession look to dampen the outlook for the labour market as economic activity is predicted to decline in the second half of this year.”

Download June 2022 report

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.