Business output growth slows as labour shortages and energy prices hit businesses

08 November 2021

  • BDO Output Index falls for sixth consecutive month to reach lowest level since March
  • Termination of furlough drives Employment Index down for the first time since ‘Winter lockdown’
  •  Inflation Index continues to accelerate as Bank of England interest rate decision looms

Business output growth across the UK has slowed for the sixth consecutive month - bringing it to the lowest overall level since March - as supply chain disruption and staff shortages continue to hit businesses, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

The Output Index, which provides the most comprehensive snapshot of output in the manufacturing and services sectors by weighting macroeconomic data from the UK’s main business surveys, decreased from 105.23 points in September to 103.35 in October. Declines were seen across both manufacturing and services, which fell to their lowest respective levels since March.

Manufacturing output growth, which has been particularly badly impacted by supply chain disruption, fell by 2.09 points to hit 97.03 in October - edging closer to the 95-mark which separates growth and decline. Staff shortages have been the main driver behind the slowdown in output growth in the services sector, which dropped by 1.85 points to 104.15 in October.

The termination of the furlough scheme at the end of September also caused BDO’s Employment Index to fall for the first time since January, when a further winter lockdown had curtailed economic activity. The Employment Index fell by 1.13 points to 107.65 in October, however,

this dip is expected to be short-term as the economy continues to recover throughout 2022 and demand for workers grows. 

Elsewhere in the report, BDO’s Inflation Index continued to rise in October – it now represents the highest value since April 2017. Higher consumer prices driven by an increase in the energy price cap drove the overall rise. The Consumer Inflation Index increased by 3.06 points to reach 105.76 in October, its highest value since November 2008. Spiraling inflation, standing firmly above the Bank of England’s target rate of 2%, led to significant pressure on the Bank to increase interest rates last week.

Commenting on the results, Kaley Crossthwaite, Partner at BDO LLP, said: “Businesses are facing an increasingly difficult winter. Between rising inflation and a lack of staff, 2022 could be a difficult year for companies who have been forced to to prioritize short-term problems over long-term growth. At the same time, consumers are beginning to see the impact of these shortages with rising fuel and energy prices, which may in turn lead to cutbacks in discretionary spending.

“In the final months of the year, businesses and consumers alike will be hoping that the economy can find some Christmas spirit over November and December and help take us into the new year on a high.”

- ENDS -

Overview of the BDO indices:

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.

 

 

October 2021 (Figures for this report)

September 2021

August 2021

September 2020

BDO Output Index

103.35

105.23

109.44

77.68

BDO Optimism Index

102.78

102.68

104.03

89.31

BDO Inflation Index

107.00

105.70

103.60

94.46

BDO Employment Index

107.65

108.78

108.60

105.78

 

Note to editors

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy. 

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed. 

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 6,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 167 countries, with 91,000 people working out of 1,658 offices worldwide. It has revenues of $10.3bn. 

Methodological notes

The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.

The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Markit/CIPS Manufacturing and Services PMI data

Taken together the surveys cover over 4,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles.

Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.