Optimism and hiring intentions rise as inflation shows early signs of falling

BDO’s Optimism Index rises to its highest point since August 2022 despite a decline in manufacturing and services output growth
The UK’s labour market sees fifth consecutive increase in BDO’s Employment Index amid stronger hiring intentions
BDO’s Inflation Index declines to its lowest point in almost two years as input price pressures begin to subside

UK businesses have shown stronger optimism and hiring intentions as inflation shows early signs of falling, according to the latest Business Trends report from accountancy and business advisory firm, BDO.

BDO’s Optimism Index reached a 10-month high in June, recording a 0.65-point increase to 100.40 and crossing the 100-point threshold which indicates above-average positivity.

Increases were driven by net-positivity across the services sector, which remains high at 100.67, and a return to improvement across manufacturing optimism which picked up by 1.00 point. Despite this, manufacturing optimism still sits in contractionary territory, below the crucial 95-point mark at 92.56, as businesses tackle ongoing supply side headwinds.

Stronger hiring intentions in June reflect the generally more positive outlook from businesses. Buoyant employment levels drove a fifth-consecutive improvement in BDO’s Employment Index, as a 0.60-point increase saw the index rise to 111.96. Increases in the number of self-employed and part-time workers in June contributed to the resilience of the UK labour market.

Confidence from businesses has been buoyed by the expected easing of inflationary pressures in the coming months. June saw BDO’s Inflation Index record its weakest overall reading since August 2021, when the country was emerging from a third national lockdown, falling by 2.06-points to 103.68. Price pressures are predicted to subside for businesses in the coming months. However, higher interest rates will place further strain on households leading to more cautious consumer spending, despite inflation slowly easing.

Despite net growth across the Optimism and Employment Indices, supply chain pressures have dampened business productivity. BDO’s Output Index fell to 95.95, its weakest reading since March, indicating a slowdown in growth.

Both the Services and Manufacturing Output Subindices declined in June and whilst services remain in in positive territory at 97.78, manufacturing witnessed a larger fall of 3.19 points to a deeply negative reading of 81.52. This marks manufacturing’s worst output reading since May 2020 when manufacturing output was curtailed by the first national lockdown.

Kaley Crossthwaite, Partner at BDO LLP, said:

“It’s encouraging to see business confidence and hiring intentions reflect the resilience we’re seeing and hearing from firms, in the face ongoing supply side challenges.

“Whilst there’s hope that the new Ofgem price cap will drive down household energy prices and in turn ease inflation, the recent rise in interest rates and stagnating price growth indicate that this may still be a long way off.

“Firms will need a helping hand from Government with targeted policies or we risk business growth stagnating and plans for expansion falling through.”

ENDS

Note to editors

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

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.

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

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.

BDO’s global network

The BDO global network provides business advisory services in 164 countries, with 95,000 people working out of 1,713 offices worldwide. It has revenues of $11.8bn.

Business Trends

BDO’s Business Trends is the ‘poll of polls’ regrouping data from the UK’s main business surveys, calculated by taking a weighted average of the results.

BDO’s Employment, Inflation, Optimism and Output Indices are 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, the Markit and Chartered Institute of Purchasing and Supply’s (CPS) Surveys of Manufacturing and of Services; the DG ECFIN industrial and services confidence indices; the RICS construction market survey; the Manpower Employment Outlook Survey; and Eurostat’s monthly business surveys.

Taken together the surveys cover over 4,000 different respondent companies, covering a range of different industries and business functions, and make up the most representative measure of business trends available.

Contacts

media@bdo.co.uk

Ellie Chatterton
echatterton@headlandconsultancy.com
+44 (0)75 5117 1933

Verriin Kaur
vkaur@headlandconsultancy.com
(+44) (0)7786 767582