Business growth slows as Inflation Index hits three-year high
Business growth slows as Inflation Index hits three-year high
- BDO’s Inflation Index hits highest level since June 2023
- Business optimism holds near two-year high despite mounting cost pressures
- Output Index falls across manufacturing and services as domestic demand softens
Business resilience is being tested as inflation index reaches its highest level in more than three years, according to the latest Business Trends report from accountancy and advisory firm BDO LLP, with elevated costs and weakening demand putting renewed pressure on firms ahead of the Autumn Budget.
BDO’s Inflation Index rose to 103.65 in September, up from 102.18 in August and its highest reading since June 2023 (103.68). The sharp rise in the index reflects several external pressures affecting UK businesses, such as renewed conflict in the Middle East pushing up energy costs and increases to the Ofgem price cap feeding through to households.
At the same time, softer consumer and domestic demand is weighing on activity, leaving businesses facing the twin pressures of rising costs and weakening demand.
Despite these pressures, the Business Optimism Index, which is indicative of business confidence in the economy, has remained resilient, staying broadly flat at 94.19 and close to the two-year high of 94.22 observed in August. The Index is higher compared to the period before last year’s Budget, at 93.30, suggesting businesses are approaching the Government’s forthcoming announcements with a more positive outlook.
Signs of weakening momentum were more evident in BDO’s Output Index, which fell to 99.19 in September from 100.30 in August. Despite the decline, the Index remained above the 95-point threshold that indicates growth, showing that activity continued to expand but at a slower pace.
The fall was consistent across both the Services Output Index, which dipped slightly to 99.42 from its 20-month high of 100.51 observed in August, and the Manufacturing Output Index, which dropped to 97.33. Softening domestic demand and weaker new business have been jointly weighing on activity. Despite the slowdown, Cebr expects UK GDP growth of 1.4% across 2026, though this remains below its long-term trend.
Meanwhile, BDO's Employment Index, a combination of hiring intentions, headcount and labour demand, remained unchanged at 93.10, holding just above its 15-year low and below the 95-point threshold for the 21st consecutive month. High energy and business costs are likely to keep discouraging hiring, while uncertainty ahead of the approaching Autumn Budget adds a further brake on recruitment decisions.
Scott Knight, Head of Growth at BDO, said:
“Businesses head into this Budget with one clear message: no surprises. Cost pressures continue to squeeze margins, hiring intentions are low and growth is starting to plateau. Firms are not looking for grand interventions, but they do need certainty. Right now, concerns about further downside risks outweigh expectations of positive change.”
ENDS
Overview of the BDO indices
An overview of all four indices is provided in the table below, detailing figures for the last four months to allow for comparison. 100 = average value. Above 95 = positive.
BDO’s Business Trends comprises multiple surveys covering 4,000 respondents. Further information on inputs and the data included is available on request.
The BDO Business Trends framework as a whole does not rely on ONS survey data. As a composite reading, the indices are constructed from the main independent UK business surveys, including the sector PMIs, combined with Cebr's own forecasts and economic judgement. The framework is therefore insulated from the data quality concerns currently surrounding official ONS statistics, including the issues affecting the Labour Force Survey.
The Inflation Index is an average of consumer price inflation and input price inflation, capturing price pressures faced by both households and businesses. In September 2026, rising energy, fuel and raw material costs pushed the input price component to its highest level since February 2023, lifting the overall Index to its highest since June 2023, despite consumer price inflation remaining more contained.
| September 2026 (figures in this report) | August 2026 | July 2026 | June 2026 | May 2026 | |
| BDO Optimism Index | 94.19 | 94.22 | 89.96 | 88.45 | 88.36 |
| BDO Output Index | 99.19 | 100.30 | 99.36 | 98.18 | 98.18 |
| BDO Inflation Index | 103.65 | 102.18 | 101.45 | 102.70 | 102.15 |
| BDO Employment Index | 93.10 | 93.10 | 93.08 | 93.08 | 93.06 |
Note to editors
BDO LLP operates in 19 offices across the UK and Ireland, employing 8,500 people. It has revenues of £1.1bn.
It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing (CR&O) services predominantly to the entrepreneurial, ambitious and growing mid-sized businesses that are driving growth in the UK and Ireland economies.
BDO LLP is the UK and Ireland member firm of the BDO Global network.
BDO Global
The BDO international network provides business advisory services in 169 countries and territories, with 95,000 people working out of 870 offices worldwide. It has revenues of US$11bn.
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