Business optimism at a two-year low as falling employment weighs on growth
Business optimism at a two-year low as falling employment weighs on growth
- Business optimism at lowest since January 2023 amid stalling growth and rising employment costs
- Confidence in manufacturing sector even more affected by uncertainty around global trade
- Employment Index in contractionary territory for first time in well over a decade as NICs increase looms
The latest Business Trends report from BDO, the business advisory and accountancy firm, reveals Business Optimism has dropped to its lowest point in two years amid stalling growth, lingering inflationary pressures and an imminent rise in employment costs.
In January, the BDO Optimism Index – which measures confidence across two of the UK’s major sectors, manufacturing and services - fell for the fourth consecutive month to 92.20. This is the Index’s lowest level since January 2023, a time marked by double-digit inflation and clear signs of economic stagnation in the UK.
While business optimism generally tends to be lower at the beginning of the year, with the festive period usually followed by a general decline in consumer spending, several additional factors likely contributed to this year’s drop in business confidence. The Manufacturing Optimism Index saw the sharpest decline, with a new year drop to 92.56, down from 96.12 in December. This significant fall reflects reduced near-term hiring expectations driven by persistent inflation, anticipated increases in employment costs (including National Insurance Contributions) and uncertainty over global trade weighing on manufacturers.
The Service Optimism Index also decreased from 93.07 in December to 92.16 in January as a result of declining hiring intentions.
Employment Index in contractionary territory for first time in 13 years
Weak economic activity, persistent inflationary pressures and poor business confidence caused the Employment Index to fall to 94.72 and officially enter contractionary territory, meaning weaker-than-average hiring activity across the board, with businesses slowing recruitment and/or cutting jobs, for the first time in well over a decade.
The Employment Index has generally been on a downward trajectory since June 2023 as hiring intentions stalled. It last recorded a similar reading in November 2012 when the UK labour market was still recovering from the Global Financial Crisis.
The reduction in hiring intentions among employers in both manufacturing and services is expected to persist throughout the year, with export-oriented businesses and retail and hospitality expected to be most adversely affected. Economic consultancy Cebr predicts as part of this report that the unemployment rate will rise throughout the year, peaking in Q3 at 4.7%.
However, despite the ongoing challenges, there are pockets of optimism for 2025. The latest Business Trends report forecasts a growth rate of 1.1% for this year, marking an acceleration from 2024 and demonstrating the resilience of UK companies navigating a demanding business environment.
Kaley Crossthwaite, Partner at BDO, said: “The new year is often time for a refresh, but businesses across the UK are continuing to face challenges that have weighed on them for months. Despite these external pressures, UK plc and the mid-market in particular, continue to demonstrate their appetite for growth. We know these companies are resilient and adaptable but they are not invincible: our report shows that supporting growth and addressing workforce challenges need to be a key priority for the year ahead.”
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.
| January 2025 (Figures for this report) | December 2024 | November 2024 |
October 2024 |
|
| BDO Optimism Index | 92.20 | 93.41 | 93.49 | 99.30 |
| BDO Output Index | 95.99 | 96.20 | 97.49 | 97.84 |
| BDO Inflation Index | 97.08 | 96.86 | 96.50 | 95.92 |
| BDO Employment Index | 94.72 | 95.14 | 95.56 | 96.00 |
Note to editors
BDO LLP operates in 18 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.
It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to mid-sized, entrepreneurially-spirited, high-growth businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.
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 166 countries and territories, with more than 119,000 people working out of 1,800 offices worldwide. It has revenues of US$15bn.
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