UK recovery leans heavily on services sector while employment stays near thirteen year-low
UK recovery leans heavily on services sector while employment stays near thirteen year-low
- Resilient services sector boosted UK business output in May as manufacturing output declined
- Business confidence edges up but still fragile amid cost pressures
- Output Index still weak compared to levels seen over the last five years, keeping the Employment Index near its thirteen year-low
A rebound in business output and confidence in May was driven almost entirely by the services sector as the Employment Index stayed at a near-thirteen-year low, according to the latest Business Trends report from accountancy and business advisory firm, BDO.
Despite persistent pressures from employment costs and global uncertainty, the BDO Output Index rose to 95.55 in May, up from 95.19 in April. Growth was concentrated in the services sector, where output climbed to 95.51, offsetting a contraction in manufacturing output.
However, both sectors continue to show underlying resilience. Some firms cite upticks in export demand from Asia and Europe, while recent interest rate cuts in May may also be providing support to domestic activity. The coming months are likely to support further momentum, particularly in the services sector, amid increased chances of a hot UK summer according to the Met Office.
Business confidence also improved in May, though it remains low compared to historic averages of the last 25 years and against pre-pandemic levels. The BDO Optimism Index rose to 92.30, up from 91.36 in April. Positive signals from May’s UK–US trade deal may have contributed to the uplift in sentiment, but business confidence was prevented from improving further by continued uncertainty around trade policy, high operating costs and fragile consumer demand.
Hiring also remains notably weak. While the pace of decline appears to be slowing, the Employment Index, which measures UK businesses’ hiring intentions and confidence in the labour market, stayed close to its lowest level in over a decade with a reading of 94.32. This is comparable to mid -2012, when the UK was still emerging from the financial crisis.
Structural domestic pressures, including employer National Insurance Contributions and the National Living Wage, are likely to continue weighing on employment growth and limit the scope for increased recovery in the Employment Index.
Overall, business confidence is expected to remain under pressure as firms navigate the combined headwinds of elevated inflation from input and consumer price increases, geopolitical risks and slow recovery in the labour market over the coming months.
Scott Knight, Head of Growth at BDO, said, “The services sector is performing well, but it can’t do all the heavy lifting. Outlook for UK businesses is fragile, not least in employment which is still at a near-decade low. Businesses need clarity, stability, and tangible actions on employment from the government to encourage the creation of new jobs rather than increase the cost to business of new hires.”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.
| May 2025 (Figures to this report) | April 2025 | March 2025 | February 2025 | |
|---|---|---|---|---|
| BDO Optimism Index | 92.30 | 91.36 | 91.43 | 91.40 |
| BDO Output Index | 95.55 | 95.19 | 97.18 | 98.03 |
| BDO Inflation Index | 99.59 | 98.73 | 97.45 | 97.94 |
| BDO Employment Index | 94.32 | 94.11 | 94.32 | 94.30 |
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.
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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