Services sector surge, AI and defence drive business output to four-year high
Services sector surge, AI and defence drive business output to four-year high
- BDO’s Output Index reaches highest level since July 2022 as client demand and new orders drive services sector surge
- Optimism Index reaches two-year high as defence and AI projects lift manufacturers
- Employment Index remains subdued despite private sector headcount growing for first time in two years
A surge in services sector spending, alongside AI and defence-related manufacturing, pushed business output to its highest level in more than four years, while business optimism has also strengthened, according to the latest Business Trends report from accountancy and advisory firm BDO LLP.
BDO’s Output Index climbed to 100.46 in October, up from 97.37 in September, reaching its highest level since July 2022.
Growth was largely driven by the services sector, reflecting a recovery in client demand, supported by increased spending on technology services and AI-related investment. A similar reading for BDO’s Output Index hasn’t been seen since July 2022, when the services sector experienced a post-pandemic summer boost.
Manufacturing output also improved modestly, with production growth at its strongest in around two years thanks to increased AI and defence-related orders.
This growth increased manufacturers’ confidence in future orders and helped push up BDO’s Optimism Index, which measures business confidence, to 94.73 in October - a high not reached since before the 2024 Autumn Budget.
With the 2026 Autumn Budget now delivered without major new burdens on business, investment decisions that had been paused pending policy clarity are expected to be released over the coming months.
Outlook improves for the labour market, but Employment Index remains a concern
Early signs of improvement emerged as the number of payrolled employees rose by a provisional 13,000 in September, the largest monthly increase in over a year, while unemployment fell to 4.7%, its lowest level in over a year, according to figures from the Office for National Statistics (ONS).
However, BDO’s Employment Index (a measure which reflects the broader labour market by combining evidence on hiring intentions, headcount and labour demand) was essentially unchanged in October, increasing by just 0.02 points to 93.12. It remained below the 95-point threshold that indicates growth for a 22nd consecutive month and is expected to remain around this level for some time.
Scott Knight, Head of Growth at BDO, said: “Last week’s ‘non-Budget’ and the absence of any significant new costs will be a relief to businesses. For the first time in years, genuine growth seems to be on the table. The challenge for the government now is to turn this potential into reality.”
ENDS
Overview of the BDO indices
An overview of all four indices is provided in the table below, detailing figures for the last five 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.
| October 2026 (figures in this report) | September 2026 | August 2026 | July 2026 | June 2026 | |
|---|---|---|---|---|---|
| BDO Optimism Index | 94.73 | 94.19 | 94.22 | 89.96 | 88.45 |
| BDO Output Index | 100.46 | 97.37 | 99.88 | 99.37 | 98.27 |
| BDO Inflation Index | 103.48 | 103.65 | 102.18 | 101.45 | 102.70 |
| BDO Employment Index | 93.12 | 93.10 | 93.10 | 93.08 | 93.08 |
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.
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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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