Business hesitancy drives labour market weakness
Business hesitancy drives labour market weakness
- BDO Employment Index nears 15-year low amid declines in payrolled employment, subdued hiring intentions and falling vacancies
- Business optimism remains in weak territory as firms prioritise cost control and resilience
UK businesses are facing continued weakness in labour market conditions, according to the latest Business Trends report from accountancy and advisory firm BDO LLP.
BDO’s Employment Index - a wider measure which reflects trends in hiring intentions, headcount and labour demand rather than the number of people in employment – fell for a third consecutive month in January to 93.30, its weakest reading since March 2011. This follows a 12-month run of multi-year lows that highlight ongoing restraint around hiring and workforce expansion.
The decline in labour market conditions has been reinforced by weak hiring demand, as firms prioritise cost control and resilience. For example, the number of payrolled employees declined for four consecutive months to the end of 2025, with the latest data from HMRC PAYE RTI showing a provisional fall of 43,000 in December, the sharpest monthly drop since late 2020.
Vacancies also remain subdued, sitting at levels last seen in early 2021 according to ONS data, and signalling limited appetite for recruitment across much of the economy.
This followed some improvement in business activity in January, with BDO’s Output Index at its highest level in over a year at 99.70 and BDO’s Optimism Index – which tracks business confidence - staging a minor recovery of 0.03 points from a four-year low in December.
However, analysis by economic consultancy CEBR on behalf of BDO suggests this resulted from near-term clarity following the Budget and stronger overseas demand from Europe, rather than a material improvement in underlying growth dynamics.
A weaker medium-term outlook continues to weigh on business confidence and stall the prospect of improvements in the Employment Index, with any meaningful improvement expected later this year.
Scott Knight, Head of Growth at BDO, said: “What we’re seeing here is a low-hire, low-fire labour market. Businesses are holding on to staff where they can, but they are reluctant to hire or invest while underlying conditions remain weak. The near-term clarity following the Budget has yet to result in a more fluid, dynamic labour market."
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 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.
|
January 2026
(figures in this report)
|
December 2025 | November 2025 | October 2025 | |
| BDO Optimism Index | 90.04 | 90.01 | 93.45 | 93.30 |
| BDO Output Index | 99.70 | 97.49 | 97.99 | 97.14 |
| BDO Inflation Index | 99.73 | 98.80 | 99.07 | 99.28 |
| BDO Employment Index | 93.30 | 93.32 | 93.53 | 93.95 |
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.
Contacts
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rstone@headlandconsultancy.com
07311 369943
Zahra Riaz
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07435 546303
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