Business Trends
Business Trends
Services brings a boost for UK business despite persistent employment challenges
- Business optimism stays above historic growth levels for fourth consecutive month as
- Late summer tourism boost for services sector helps drive output increase
- However, BDO’s Employment Index falls to lowest level since January 2013
Business confidence remained above historic growth levels for the fourth consecutive month against a backdrop of expectations of further cuts to interest rates, according to our latest report.
The report, which covers the first full month since Labour’s election to Government, showed services output rising to a two-year high of 99.03. Growth was driven by an uptick in new orders and a late summer tourism boost, which spurred consumer and business spending. Businesses also ramped up staffing levels to accommodate for heightened summer demand.
The BDO Optimism Index fell slightly to 100.33 in August but remained in positive territory thanks to interest rate cuts. Optimism is expected to rise further over the coming months, supported by the anticipation of additional interest rate cuts following last month’s reduction to 5%.
BDO’s Inflation Index also signalled that pressure on businesses could be easing. The Index fell for the first time in four months to 96.79. Although overall inflation remains above the Bank of England’s 2% target, both the input and consumer inflation sub-indices recorded declines, suggesting a slowdown in price increases.
Employment Index falls to lowest level since January 2013
Despite these positive signals, the labour market continues to show signs of weakening. BDO’s Employment Index fell for the fourteenth consecutive month to 95.89 in August, its lowest reading since January 2013. This reflects ongoing concerns in the job market, including falling job vacancies and more people claiming unemployment-related benefits, which reached its highest level since December 2021 according to the Office for National Statistics.
These indicators suggest further weakening in the labour market, with additional softening expected in the months ahead. Despite the Bank of England’s recent interest rate cut, these trends have yet to reverse, and economic consultancy Cebr now forecasts that the unemployment rate will peak in Q1 2025, later than initially expected.
Kaley Crossthwaite, Partner at BDO said: “Despite ongoing inflationary pressures, it is good to see that businesses remain largely optimistic, with the services sector in particular continuing to be the cornerstone of economic growth.
“The coming months will be crucial in determining whether the UK can maintain its recovery momentum and fight back against these headwinds. No doubt all eyes will be on the Autumn budget and the government’s plans for helping business tackle persistent unemployment levels and the skills gap.”
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.