Confidence and output growth fall to lockdown levels as recession looms

Confidence and output growth fall to lockdown levels as recession looms

  • Output and Optimism Indices fall to lowest levels since third national lockdown in February 2021, now sitting in contractionary territory
  • BDO’s Inflation Index reaches record high after energy price cap increases in October
  • Rising inflation and dampened outlook drive a fall in employment with further declines expected in coming months

October saw BDO’s Output and Optimism Indices fall to their lowest levels since the third national lockdown in February 2021, as record-high inflation continues to dampen the economy and prompt fears of a recession, according to the latest Business Trends report from accountancy and business advisory firm, BDO.

The latest figures indicate that inflationary pressures are to blame for the decline across three of BDO’s four indices, as Optimism, Output and Employment all recorded their weakest readings for at least six months. BDO’s Inflation Index reached an all-time high in October forcing businesses to re-evaluate production in line with demand and supply-side headwinds and exercise caution in their outlook and hiring intentions.  

October saw BDO’s Output and Optimism Indices plummet to 93.10 and 94.63, respectively, their lowest levels since the third national lockdown in February 2021. Both indices now sit in contractionary territory, below the 95-point mark – regarded as the watershed between growth and decline, an indicator of a recession.

The dip in productivity was driven by a fall across both the Services and Manufacturing Indices for the second month in a row. Continued disruption to global logistics networks and increased input prices have pushed manufacturing activity into negative territory, whilst the cost-of-living crisis has impacted consumer demand, driving down services output.

Confidence amongst businesses followed a similar downward trajectory as the weaker macroeconomic environment drove a seventh consecutive month of decline for BDO’s Optimism Index.

BDO’s Inflation Index rose by 1.67 points in October to a record high of 120.67 following an increase in the energy price cap which caused consumer price inflation to climb. At the same time, diminished spending power due to a weaker currency put considerable upwards pressure on input inflation leading to a record high of 121.26, as businesses importing goods paid higher prices.

Driven by inflationary fears, the Employment Index mirrored waning confidence among businesses with a fall of 1.14 points to 113.05 last month. However, the index has remained resilient, and the unemployment rate stood at a historic low of 3.5% on the most recent reading in the three months to August.

Despite the index remaining firmly in positive territory, hiring intentions are set to decline in the longer-term as businesses continue to tackle mounting inflation and a recession, resulting in further falls in the index over the coming months.

Kaley Crossthwaite, Partner at BDO LLP, said:

“A contraction in both optimism and output is a concerning bellwether for firms, as inflation is expected to continue climbing in the run-up to Christmas. A weaker currency and drop in consumer spending power will have real and tangible consequences for firms relying on imports or customers in the retail and services sector, alongside the knock-on effects of managing political and economic uncertainty.

“We also know that rising energy costs are a top concern for nearly half of mid-sized businesses this winter as we’re only just beginning to see the impacts of the energy price cap rise. Firms will be looking to the Autumn Statement for the support they need as they navigate a tough period ahead.”



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 2022

(Figures for this report)


September 2022


August 2022


October 2021

BDO Optimism Index





BDO Output Index





BDO Inflation Index





BDO Employment Index






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We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed. 


BDO LLP operates in 18 offices across the UK, employing 7000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

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Ellie Chatterton