Rising global tensions drive BDO Output Index to lowest level in five years
Rising global tensions drive BDO Output Index to lowest level in five years
- Output Index hits lowest point since 2021, according to latest research from BDO
- Sharp drop in business optimism as companies grapple with rising costs and uncertainty from Middle East conflict
- Employment Index at new 15-year low as labour market weakness persists
UK business activity fell to a multi-year low in March as conflict in the Middle East weighed on costs, output and confidence, according to the latest Business Trends report from accountancy and advisory firm BDO LLP.
BDO’s Business Output Index declined to 94.93 in March, down from 95.78 in February. This marks its lowest reading in more than five years, and the first-time output has fallen into contractionary territory, slipping below the critical 95-mark, since February 2021.
The slowdown was felt across both the services and manufacturing sectors. Renewed pressure on fuel and energy squeezed margins across manufacturing, the impact of which was also evident in BDO’s Inflation Index, which rose to 99.30 as the escalating conflict pushed up commodity prices in March.
For the services sector, weakening demand and caution around discretionary spending weighed on activity. Both businesses and consumers held back on new spending due to inflationary fears.
With inflation now expected to remain elevated into the second half of 2026, business confidence also dropped sharply. The BDO Optimism Index, which measures business confidence, fell from 93.45 to 91.83 in March, reversing February’s recovery and erasing recent gains. Manufacturers reported their lowest level of confidence since April 2025, when businesses were dealing with US tariff announcements. As trade and geopolitical risks intensify, elevated uncertainty is likely to delay investment and spending decisions in the months ahead.
Against this backdrop, BDO’s Employment Index (which reflects trends in hiring intentions, headcount and labour demand) edged down to 93.28 in March - its lowest reading in 15 years. Payrolled employment remains below prior year levels and vacancy numbers have shown little improvement in recent months according to ONS data, signalling continued weakness in hiring demand.
The ongoing uncertainty stemming from the conflict in the Middle East is expected to exacerbate this slowdown as higher energy and input costs limit businesses’ capacity to expand headcount. Labour demand is likely to remain subdued through 2026, with the unemployment rate now expected to stay close to its projected peak until at least Q1 2027.
Scott Knight, Head of Growth at BDO, said: “The escalation of conflict in the Middle East has added further strain to an already weak outlook, with soaring energy and commodity prices and geopolitical volatility weighing heavily on businesses.
“The decline in business output and confidence underlines the UK’s exposure to the global energy shock.
“While a ‘fragile truce’ has provided some temporary relief, confidence will not be restored until energy flows stabilise under a lasting ceasefire.”
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, but please note the ONS Labour Force Survey is not one of them.
| March 2026 (figures in this report) | February 2026 | January 2026 | December 2025 | November 2025 | |
| BDO Optimism Index | 91.83 | 93.45 | 90.04 | 90.01 | 93.45 |
| BDO Output Index | 94.93 | 95.78 | 96.90 | 96.54 | 97.28 |
| BDO Inflation Index | 99.30 | 98.51 | 99.73 | 98.80 | 99.07 |
| BDO Employment Index | 93.28 | 93.30 | 93.30 | 93.32 | 93.53 |
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.
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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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