Increase in business optimism tampered by struggling services
Increase in business optimism tampered by struggling services
- Business confidence amongst manufacturers rebounds from recent lows, with recent trade agreements a potential key driver
- Output remains subdued as gains in manufacturing are offset by softening momentum in services
- BDO’s Employment Index staying down at lowest level since October 2012 with limited room for recovery
The latest monthly Business Trends report from BDO, the business advisory and accountancy firm, reveals optimism in the manufacturing sector is at its highest level in nine months.
BDO’s Optimism Index rose to 91.96 in July, up from 91.58 in June, following nine consecutive months of subdued business sentiment since the Autumn Budget. This was driven by a strong rebound in manufacturing optimism, which rose sharply from 93.74 to 96.50.
Recent trade agreements could be a driver of this uptick for manufacturing optimism. However, headwinds including weak GDP growth, high labour and energy costs and ongoing uncertainty surrounding future global trade policy continue to weigh on confidence. In contrast to manufacturing, sentiment in the services sector remained broadly flat.
BDO’s Output Index also edged down to 97.79 in July from 98.05 in June, signalling sustained yet muted growth below historic levels. The services sector, which makes up the majority of the UK’s economic output, lost the positive momentum it had picked up at the start of the summer amid persistent cost pressures and weak overseas demand, with output in the services sector falling from 98.32 in June to 97.98 in July.
Although new trade deals are showing promise, this has yet to unlock meaningful investments for businesses. Margin pressures remain acute and companies are still holding back amid uncertainty.
Labour market remains under strain as businesses tighten hiring plans
Against this backdrop, the BDO Employment Index fell to 94.11 in July, matching its lowest reading since October 2012. This near 13-year low reflects a marked cooling in the labour market, with declining payrolled employee numbers and falling vacancy rates contributing to subdued hiring sentiment.
While there are survey-based signs of modest improvement in near-term recruitment plans for manufacturers, the structural pressures remain acute across all sectors. Higher employer National Insurance Contributions and April’s rise in the National Living Wage have tightened labour budgets, and businesses are preparing for further cost exposure ahead of the Autumn Statement.
With economic analysis behind the Business Trends report forecasting an unemployment rate peak at 4.9% later this year, there is limited scope for a meaningful recovery in employment conditions. BDO expects the Employment Index to remain at historically low levels for the rest of 2025.
Scott Knight, Head of Growth at BDO, said: "There are signs of recovery, but they are fragile. Manufacturers may be breathing a little easier in the wake of trade deals, but their output is yet to catch up. Business leaders are stuck in limbo, waiting for clearer signals from the government that further investment will be worth the gamble.”
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 comprises multiple surveys covering 4,000 respondents. Further information on inputs and the data included is available on request, but please note the ONS Labour Force Survey is not one of them.
| July 2025 (Figures for this report) |
June 2025 |
May 2025 |
April 2025 |
|
|
BDO Optimisim Index |
91.96 |
91.58 |
92.30 |
91.36 |
|
BDO Output Index |
97.79 |
98.05 |
96.69 |
97.10 |
|
BDO Inflation Index |
99.72 |
99.10 |
99.59 |
98.73 |
|
BDO Employment Index |
94.11 |
94.22 |
94.32 |
94.11 |
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.
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