Business Trends
Business Trends
UK employment at 12-year low amid rising labour costs and global uncertaint
- Businesses curb hiring as vacancies fall below pre-pandemic levels for first time since May 2021, amid rising labour costs and a rapidly changing global trade landscape
- Decline in business output shows serious challenges facing UK companies
- Business confidence at weakest point in four years, comparable to national lockdowns
The latest Business Trends report reveals UK employment has reached a new 12-year low as businesses grapple with rising labour costs and global uncertainty.
This drop in the BDO Employment Index signals further cooling of the UK jobs market, with vacancies continuing to decline in Q1 and falling below pre-pandemic levels for the first time in four years. Early estimates also indicate the number of payrolled employees fell by 78,000 in March.
This raises new concerns that businesses are pulling back hiring in response to be mounting cost pressures and employment overheads, including National Insurance Contribution (NICs) and the increased minimum wage, which came into effect in April.
These domestic pressures have been compounded by ongoing international headwinds, including the ever-evolving international trade picture. While separate research from BDO indicates that mid-sized businesses’ international growth ambitions remain strong, business output stalled in April. The BDO Output Index fell from 98.23 to 96.90 - its sharpest monthly decline since October 2023, when the conflict in the Middle East started. Recent trade agreements, including the India–UK deal and the US–UK deal, could be a positive signal for businesses, but their immediate impact on output remains uncertain.
This drop reverses the modest gains seen in March, when the Output Index improved slightly, and points to renewed weakness in the economy driven in large part by the services sector. Services output fell from 98.72 to 97.17 this month as a result of softer international demand following the US tariffs announcements and their subsequent impact on financial markets.
A fall in business confidence also contributed to the weaking employment market. BDO’s Optimism Index, which measures business confidence across two of the UK’s major sectors - manufacturing and services - fell to 91.36 last month amid rising labour costs, including NICs and minimum wage increase, alongside global trade uncertainties. This is the lowest Optimism reading since January 2021, when the UK was entering its third national lockdown.
The decline was broad-based but particularly driven by the services sector, which showed uncharacteristic weakness and weighed heavily on the overall Optimism Index.
Scott Knight, Head of Growth at BDO said, “Month on month we’re seeing the bleak impact of the increased tax burden, greater regulation and global instability on UK businesses. For mid-market companies to thrive they need space to focus on day-to-day operations rather than constant firefighting. It is practically impossible for businesses to plan and invest with so much instability. The Chancellor must act quickly to provide better access to capital, skills support and market stability.”
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.