Services sector recovery slows as government restrictions take their toll
- Services Output Index records limited growth as pace of economic recovery slows
- Employment falls as the Government places greater burden on employers
UK business recovery is losing momentum, with output growth in the services sector significantly slowing in September.
While September witnessed a fifth consecutive month of output growth since levels plummeted to record lows in April, it marked a marginal rise of just 1.01 points last month. This compares to gains of 6.7 points recorded in July and 11.16 points in June. BDO’s Output Index - which provides the most comprehensive snapshot of business output by weighting macroeconomic data from the UK’s main business surveys - now stands at 77.95, well below the long-term average of 100.
This decline in momentum was driven by the services sector, as various government measures designed to prevent the spread of coronavirus, such as the ‘rule of six’ and the 10pm curfew, hit businesses. Many firms also reined in plans for returning to the office in a further blow to industry.
BDO’s Services Output Index - which includes hospitality, retail, and financial and professional services - rose by just 0.96 points to 76.32 in September, a sharp deceleration on the significant increases seen during the summer. This slowdown in the UK’s economic recovery from the pandemic was also driven by the renewed spread of infections in recent weeks, as consumers become more hesitant to visit restaurants and return to the high street.
Confidence in the services sector also dampened in line with the pedestrian pace of output growth. BDO’s Services Optimism Index rose marginally by 0.96 points to 76.32 in September. This compares to a 6.81-point increase when lockdown restrictions first lifted in July.
Elsewhere in the report, BDO’s Employment Index, which has remained resilient throughout the pandemic, slipped 0.23 points last month to 109.46. While the labour market has been protected by the Chancellor’s Coronavirus Job Retention Scheme, this gentle decrease comes as the government announced plans to taper off its support by replacing the furlough scheme with a new Job Support Scheme, which will place a greater burden on employers from November.
Download September 2020 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.