Services sector drives UK output to three-year high but employment hits fresh low

 

  • Services sector drives UK output to reach three-year high, supported by stronger demand and seasonal summer spending
  • Business confidence improves but prevailing uncertainty weigh on outlook
  • Employment falls to lowest level since October 2012 as hiring slowdown deepens

The latest Business Trends report from business advisory and accountancy firm BDO LLP, shows UK economic output in August reached its strongest point since 2021.

BDO’s Output Index rose to 100.82 in August, its highest level for over three years and the first time it has crossed a threshold that points to stronger economic activity. The uplift was driven by the services sector where output increased from 100.19 in July to 101.62, reflecting firmer consumer demand and seasonal summer spending. Gains in the services sector helped offset weaker manufacturing activity, which slipped to 94.51 from 96.31 amid declining orders and ongoing trade uncertainty.

Business confidence also strengthened, recording its sharpest monthly rise in over a year. BDO’s Optimism Index increased to 93.18 in August, up from 91.96 in July. The services sector was the main driver, lifted by stronger investment and expectations of a modest rebound in consumer spending. The manufacturing sector showed a marginal improvement, rising to96.65 from 96.50.

While sentiment is beginning to recover from the lows seen for most of this year, it remains well below historic norms. Uncertainty around potential tax rises in the Autumn Budget continues to weigh on confidence and is preventing a more decisive rebound.

Labour market remains under strain as hiring slows further

The labour market continued to decline, with BDO’s Employment Index falling to 94.01 in August- its lowest reading since October 2012. Falling vacancies have been driven by a freeze in hiring intentions along with shrinking payrolls and slowing wage growth, which all point to a sharp slowdown in hiring.

As employers continue to grapple with this year’s rise in National Insurance Contributions (NICs) and higher National Living Wages, labour budgets remain tight. Economic analysis from the Centre for Economics and Business Research (Cebr) forecasts unemployment will peak at 4.8% in Q3 of 2025 and stay elevated into early 2026.

Scott Knight, Head of Growth at BDO, said:

“The services sector has experienced much volatility this year, and only last month, was struggling under persistent cost pressures and weak overseas demand. It is therefore encouraging to see the sector bouncing back and driving overall output growth, demonstrating its importance to the health of the economy. Meanwhile employment remains under pressure, and the Government now needs to double down on its employment and upskilling ambitions. Businesses are waiting for the Autumn Budget with bated breath. If it further adds to business costs, it risks stalling the recovery just as momentum is beginning to build.”

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.

  August 2025 (Figures for this report) July  2025 June 2025 May  2025 April 2025 March 2025
BDO Optimism Index  93.18 91.96 91.58  92.30  91.36  91.43 
BDO Output Index  100.82 99.65 97.72 97.03 97.43  97.35
BDO Inflation Index  100.57 99.72 99.10  99.59  98.73  97.45 
BDO Employment Index  94.01 94.11 94.22  94.32  94.11  94.32 

 

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.

Aisha Ali
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Email: aali@headlandconsultancy.com

James Andrews/> Tel: +44 (0)73 1136 9922
Email: jandrews@headlandconsultancy.com

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