Economic outlook to dampen companies’ festive cheer this Christmas as hiring and growth decline

• UK labour market activity slowed for its third consecutive month as employers cut back on hiring in order to weather recession, according to BDO’s Employment Index 
• Price pressures remain high for firms as the Inflation Index registers another historically elevated reading, despite falling for the second consecutive month 
• BDO’s Output Index fell to its weakest reading since the third national lockdown as the cost-of-living crisis continued to drive declines across the services sector 
• Business confidence plunged to a two-year low as recessionary pressures and the expectation of further economic woes caused optimism to plummet 

Weaker hiring intentions and recessionary pressures suggest a challenging winter ahead for UK businesses, according to the Business Trends report from accounting and business advisory firm BDO. November saw all four indices across employment, inflation, output and optimism fall for the second time in the last three months. 

The latest figures show BDO’s Employment Index contracted by 1.20 points in November, as it fell for the third month in a row to 111.85. While the Index remains above 95, considered the watershed between growth and contraction, it now sits at its lowest point since February 2022. This decline has been caused by weaker hiring intentions across the services sector, as the number of firms expecting to make redundancies overtook those looking to fill vacancies. 

BDO’s Inflation Index declined for the second time in the past three months, falling to 118.43, although still remains historically elevated. This represents a sizeable contraction of 2.24 points – the largest fall the index has seen since May 2020. The lower reading was driven in part by a drop in the value of sterling improved following market volatility attributed to government measures announced in September’s mini-Budget.  

Indications of a recession have put downward pressure on productivity growth among businesses. BDO’s Output Index recorded a steep drop of 2.43 points to 90.56 in November, registering its weakest reading since the third national lockdown at the start of 2021. This suggests that overall economic output is contracting, with further sub-95 values expected until at least Q2 2023.  

BDO’s Optimism Index plunged to a record two-year low of 91.64 in November, as recessionary pressures and the expectation of further headwinds caused a drop in confidence.  

The services sector has seen the largest fall in optimism, having been particularly exposed to inflationary pressures and a decline in output, as supply chain disruption and soaring living costs impacted consumers and businesses alike.  

Entering the Christmas run-up, waning confidence among businesses reflects falls across the Employment and Output Indices, while there are still significant pressures on the Inflation Index.  

Kaley Crossthwaite, Partner at BDO LLP, said: 

“This time last year, businesses faced an uphill battle after months of on-going COVID-19 restrictions and the pandemic still impacting economic activity. While the challenges may be different this year, the outlook remains concerning, as the latest figures suggest the economy is on the verge of contraction. 

“Rising costs, continued supply chain challenges and historically low spending power are just some of the challenges businesses and their customers face at a time of year when activity should be reaching its peak.  

“As another interest rate decision is due, and with a tough macroeconomic environment to battle, firms need the right support and reassurance from the Government to provide confidence ahead of an uncertain winter.” 

ENDS