Business confidence falls to lowest level in almost two years as output drops sharply
Business confidence falls to lowest level in almost two years as output drops sharply
- Business confidence is at its weakest since January 2023 as businesses face rising costs, reduced customer confidence and falling orders
- Output Index recorded its lowest reading in more than a year despite “golden” Christmas quarter, driven by declines across both services and manufacturing sectors
- Employment falls again after breaking a continuous 15-month decline in October, as businesses face mixed signals on fiscal and monetary policy
The BDO Optimism Index fell 5.81 points to 93.49 in November, its weakest reading since January 2023, when businesses were contending with elevated inflation and political instability. This is the biggest month-on-month drop that the Optimism Index has seen since August 2021.
This month’s decline in confidence is likely to reflect businesses’ immediate reaction to announcements in the Autumn Budget, which included increased employer National Insurance Contributions and a higher National Living Wage. Optimism fell across services and manufacturing – two of the UK’s major sectors – but the significant drop in the Index was primarily driven by the Services Optimism Sub-Index, which declined by 6.1 points from 99.34 in October to 93.19 in November.
The BDO Output Index also recorded a sharp drop, falling 3.20 points to 94.66 in November, its weakest reading since October 2023.
The Index has now entered contractionary territory for the first time this year, signalling that output in the UK economy shrank in November, driven by strong declines in both services and manufacturing activity. The Services Output Index fell to 3.37 points to 95.03, reflecting reduced customer confidence, declining staff numbers and rising input costs. Manufacturing also declined with the Manufacturing Output Index dropping to 91.74 amid weakening domestic and overseas demand.
Employment also saw a marginal return to decline, with the Employment Index falling 0.44 points to 95.96 in November, after rising in October for the first time in 15 months. Ongoing challenges in the labour market persist, as both average wage growth and payroll data continue to slow. (Note: Payroll data refers to the number of employees listed on UK payroll, based on HMRC PAYE records, and does not include the self-employed.) Despite businesses pinning their hopes on the prospect of further interest rate cuts early next year, cost pressures - including higher National Insurance Contributions - may offset any positive effects, leaving a mixed future picture for businesses.
Kaley Crossthwaite, Partner at BDO, said: “December marks the end of a tough couple of years for businesses and the drop in business confidence this month is not a surprise given the significant challenges they continue to face.
“While it’s encouraging to see businesses planning ahead already and findings efficiencies to manage rising costs, meaningful growth in 2025 will only happen with targeted support from the government. Policies that address the continued effects of inflation and pricing challenges are vital. Resilience remains a defining feature of UK mid-market businesses, and with the right support, they are well positioned to weather these challenges, create jobs and drive growth.”
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.
BDO’s Business Trends is a ‘poll of polls’ and comprises multiple surveys covering 4,000 respondents. Further information on outputs is available on request, but please note the Labour Force Survey is not one of them.
| November 2024 (Figures for this report) | October 2024 |
September 2024 |
August 2024 |
|
| BDO Optimism Index | 93.49 | 99.30 | 100.42 | 100.33 |
| BDO Output Index | 94.66 | 97.86 | 97.79 | 97.90 |
| BDO Inflation Index | 96.50 | 95.92 | 96.41 | 96.79 |
| BDO Employment Index | 95.56 | 96.00 | 95.45 | 95.89 |
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