Business Trends
Business Trends
Increase in business optimism tampered by struggling services
- Business confidence amongst manufacturers rebounds from recent lows, with recent trade agreements a potential key driver
- Output remains subdued as gains in manufacturing are offset by softening momentum in services
- BDO’s Employment Index staying down at lowest level since October 2012 with limited room for recovery
The latest monthly Business Trends report reveals optimism in the manufacturing sector is at its highest level in nine months.
BDO’s Optimism Index rose to 91.96 in July, up from 91.58 in June, following nine consecutive months of subdued business sentiment since the Autumn Budget. This was driven by a strong rebound in manufacturing optimism, which rose sharply from 93.74 to 96.50.
Recent trade agreements could be a driver of this uptick for manufacturing optimism. However, headwinds including weak GDP growth, high labour and energy costs and ongoing uncertainty surrounding future global trade policy continue to weigh on confidence. In contrast to manufacturing, sentiment in the services sector remained broadly flat.
Our Output Index also edged down to 97.79 in July from 98.05 in June, signalling sustained yet muted growth below historic levels. The services sector, which makes up the majority of the UK’s economic output, lost the positive momentum it had picked up at the start of the summer amid persistent cost pressures and weak overseas demand, with output in the services sector falling from 98.32 in June to 97.98 in July.
Although new trade deals are showing promise, this has yet to unlock meaningful investments for businesses. Margin pressures remain acute and companies are still holding back amid uncertainty.
Labour market remains under strain as businesses tighten hiring plans
Against this backdrop, the BDO Employment Index fell to 94.11 in July, matching its lowest reading since October 2012. This near 13-year low reflects a marked cooling in the labour market, with declining payrolled employee numbers and falling vacancy rates contributing to subdued hiring sentiment.
While there are survey-based signs of modest improvement in near-term recruitment plans for manufacturers, the structural pressures remain acute across all sectors. Higher employer National Insurance Contributions and April’s rise in the National Living Wage have tightened labour budgets, and businesses are preparing for further cost exposure ahead of the Autumn Statement.
With economic analysis behind the Business Trends report forecasting an unemployment rate peak at 4.9% later this year, there is limited scope for a meaningful recovery in employment conditions. BDO expects the Employment Index to remain at historically low levels for the rest of 2025.
Scott Knight, Head of Growth at BDO, said: "There are signs of recovery, but they are fragile. Manufacturers may be breathing a little easier in the wake of trade deals, but their output is yet to catch up. Business leaders are stuck in limbo, waiting for clearer signals from the government that further investment will be worth the gamble.”
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.