Business Trends
Business Trends
Business optimism at a two-year low as falling employment weighs on growth
- Business optimism at lowest since January 2023 amid stalling growth and rising employment costs
- Confidence in manufacturing sector even more affected by uncertainty around global trade
- Employment Index in contractionary territory for first time in well over a decade as NICs increase looms
Business Optimism has dropped to its lowest point in two years amid stalling growth, lingering inflationary pressures and an imminent rise in employment costs.
In January, the BDO Optimism Index – which measures confidence across manufacturing and services - fell for the fourth consecutive month to 92.20. This is the Index’s lowest level since January 2023, a time marked by double-digit inflation and clear signs of economic stagnation in the UK.
Business optimism tends to be lower at the beginning of the year, with the festive period usually followed by a general decline in consumer spending. However, several additional factors likely contributed to this year’s drop in business confidence. The Manufacturing Optimism Index saw the sharpest decline, with a drop to 92.56, down from 96.12 in December 2024. This significant fall reflects reduced near-term hiring expectations driven by persistent inflation, anticipated increases in employment costs and uncertainty over global trade.
The Service Optimism Index also decreased from 93.07 in December 2024 to 92.16 in January 2025 as a result of declining hiring intentions.
Employment Index in contractionary territory for first time in 13 years
For the first time in well over a decade, businesses are slowing recruitment and/or cutting jobs. Weak economic activity, persistent inflationary pressures and poor business confidence caused the Employment Index to fall to 94.72 and officially enter contractionary territory, meaning weaker-than-average hiring activity across the board.
The Employment Index has been on a downward trajectory since June 2023 as hiring intentions stalled. It last recorded a similar reading in November 2012, when the UK labour market was still recovering from the Global Financial Crisis.
The reduction in hiring intentions among employers is expected to persist throughout the year, with export-oriented businesses and retail and hospitality expected to be worst hit. Economic consultancy Cebr predicts that the unemployment rate will rise throughout the year, peaking in Q3 at 4.7%. You can find out more about those predictions in the full report.
Nonetheless, there are pockets of optimism for 2025. The latest Business Trends report forecasts a growth rate of 1.1% for this year, marking an acceleration from 2024 and demonstrating the resilience of UK companies navigating a demanding business environment.
Kaley Crossthwaite, Partner at BDO, said: “The new year is often time for a refresh, but businesses across the UK are continuing to face challenges that have weighed on them for months. Despite these external pressures, UK plc and the mid-market in particular, continue to demonstrate their appetite for growth. We know these companies are resilient and adaptable but they are not invincible: our report shows that supporting growth and addressing workforce challenges need to be a key priority for the year ahead.”
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.