Business Trends
Business Trends
UK businesses more confident despite rising unemployment
- BDO’s Optimism Index hits highest levels since post-pandemic surge, indicating sustained positive sentiment among businesses.
- Employment Index has declined for the 12th consecutive month, reaching its lowest point since February 2013.
- Despite rising inflation, easing inflationary pressures and potential interest rate cuts are likely to stimulate economic growth in the coming months.
As the UK transitions into a new government, businesses are exhibiting encouraging signs of optimism and potential recovery despite ongoing challenges, according to the latest report from business advisory and accountancy firm, BDO.
The BDO Optimism Index remains above the 100-mark for the second consecutive month, standing at 102.09 in June, down slightly from 102.30 in May. This reflects continued positive sentiment among businesses, at levels last seen in mid-2022, when the post-pandemic optimism was being offset by the onset of conflict in Russia and Ukraine.
BDO’s Employment Index has declined for the twelfth consecutive month, reaching 96.77 in June, signalling ongoing challenges in the labour market. This marks its lowest point since February 2013, when the UK labour market was still recovering from the Global Financial Crisis.
With UK economic activity expected to rise in the coming months, further significant increases in the unemployment rate are unlikely. However, the continued decline in the Employment Index underscores the harsh reality facing the new government, which must act swiftly on areas such as reforming the apprenticeship levy and introducing Skills England to drive recovery in the Index. Economic consultancy firm, Cebr forecasts the unemployment rate to peak at 4.6% in Q3 2024.
The Manufacturing Optimism Index rose marginally to 104.15 in June from 104.11 in May, marking its highest level since July 2022. This increase reflects rising confidence within the manufacturing sector, bolstered by new orders despite the challenges of elevated input prices and tight financial conditions. In contrast, the Services Optimism Index fell slightly to 101.83 in June from 102.07 in May, indicating persistent high services inflation, which stood at 5.7% as of May amidst elevated nominal wage growth.
Stable yet modest growth in business activity is seen in BDO’s Output Index which continues to stay within the 95-100 range for the fifth consecutive month, despite falling to 97.59 in June from 98.71 in May. Rising new orders for the manufacturing sector are likely to behind this, with wider growth weighed down by rising input prices and persistent tightness in financial conditions.
The BDO Inflation Index rose to 97.72 in June from 97.30 in May, driven by an increase in the Input Inflation Index. The Input Inflation Index increased to 96.26, marking a return to expansionary territory after 13 months of sub-95 readings. Easing inflationary pressures and potential interest rate cuts are likely to stimulate economic growth in the coming months.
Kaley Crossthwaite, Partner at BDO LLP, said: “The prospect of ending months of political uncertainty clearly brought with it a jump in confidence among businesses, reaching levels we’ve not seen since the post-pandemic surge. But while optimism is high, employment falling for a 12th consecutive month highlights the stark reality of the economic challenges facing this new Government.
"Businesses need support to tackle significant challenges with initiatives that will drive economic growth and ensure employees have the necessary skills to thrive. With a new government, there is an opportunity to focus on programs that boost employment levels including making the apprenticeship levy more flexible to address workforce pressures.”
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.