Service sector slowdown drags on UK output growth
Service sector slowdown drags on UK output growth
- Service output fell at steepest rate since September 2022 amid higher costs, weaker demand and poor weather
- Overall business output slips back below long-term trend after brief rebound in August
- Employment Index at fresh 13-year low as firms delay hiring decisions in run-up to Autumn Budget
The UK’s post-summer economic rebound has been short-lived, according to the latest Business Trends report from business advisory and accountancy firm BDO LLP.
BDO’s Output Index declined to 98.53 in September, down from 101.21 in the previous month and falling below the 100-point threshold which represents long-term average growth levels over the past 15 years. After exceeding 100-points in August for the first time in over three years, September’s decline signals that UK business momentum has once again stalled.
This decline was largely driven by the services sector, where output fell from 102.06 to 99.07, marking the sharpest month-on-month fall since September 2022, when UK inflation had just hit double digits. The downturn reflects a combination of ongoing pressures from April’s payroll tax changes, dampened demand from economic uncertainty, and wet weather conditions in September, all of which collectively weakened consumer activity.
Manufacturing output also slipped slightly from 94.53 in August to 94.28 in September, as supply chain disruptions and lingering trade uncertainty constrained production.
Looking ahead, growth is likely to remain muted, as high inflation, subdued consumer demand and a cooling labour market leave little room for interest rate cuts needed to boost recovery.
Business outlook hinges on Budget as Employment hits 13-year low
Wariness ahead of the Autumn Budget weighed on businesses in September, as they stayed in “wait mode” ahead of potential policy announcements. The labour market continues to unwind with the BDO Employment Index –which tracks wider market trends including headcount, vacancies and hiring expectations – remaining on its general downward trend seen since late 2023.
As firms remain cautious amid payroll costs and policy uncertainty, BDO's Employment Index fell to 93.90 in September, representing another 13-year low. Vacancies and headcount expectations are both down, with the data showing business’ expectations for additions to headcount at their lowest since the pandemic.
Against a challenging backdrop for business, BDO’s Optimism Index still rose in September to 93.38, up from 93.18 in August, its second consecutive monthly increase. Gains were seen across both manufacturing and services, with manufacturing confidence reaching its highest level since October 2024. This was a result of improved confidence in order books and external investment announcements such as the US-UK Technology Prosperity Deal. Manufacturing businesses remain hopeful that leanness in inventories will pave the way for more consistent production levels.
Scott Knight, Head of Growth at BDO, said:
“The uptick we saw in August was a false dawn.
“While there is a kernel of hope amongst the mid-market, it is fragile, and they need clarity from the top before they can take any meaningful investment risks.
“Fiscal signals will be crucial in the run up to the Budget with all eyes on the Chancellor to deliver the so called ‘Securonomics’ needed to create an environment for longer term business planning.”
ENDSOverview 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.
| September 2025 (Figures for this report) |
August 2025 | July 2025 | June 2025 | May 2025 | April 2025 | |
| BDO Optimism Index | 93.38 | 93.18 | 91.96 | 91.58 | 92.30 | 91.36 |
| BDO Output Index | 98.53 | 101.21 | 97.94 | 97.72 | 97.03 | 97.43 |
| BDO Inflation Index | 101.02 | 100.57 | 99.72 | 99.10 | 99.59 | 98.73 |
| BDO Employment Index | 93.90 | 94.01 | 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.
BDO LLP is the UK member firm of the BDO international network.
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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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