BusinessBusiness Recovery

Cost-of-living crisis drags business optimism to ‘lowest point’

The downfall was primarily driven by the services sector, which has felt the ‘full force’ of consumers tightening their spending on non-essentials

Business optimism has fallen to its lowest level in over a year as firms grapple with increasing economic headwinds, declining 4.82 points to 101.93, according to BDO’s latest Business Trends report.

May marked the index’s second consecutive month of decline, pushing it to its lowest point since April 2021, when coronavirus restrictions were being relaxed.

The downfall was primarily driven by the services sector, which has felt the “full force” of consumers tightening their spending on non-essentials. BDO’s Services Optimism Index fell by 5.35 points to 100.95 in May and now sits just above the 100-level which reportedly denotes long-term average growth.

The outlook from businesses is consistent with output declines, as rising economic challenges place downward pressure on manufacturing and services sector output. The BDO Output Index fell by 1.86 points in May to 100.53 – its lowest reading in 14 months.

Despite the downturn in business confidence, employment levels are “bucking the trend”, as BDO’s Employment Index hit over a three-year high in May. Rising 0.89 points to 113.89, the index now exceeds pre-pandemic levels, recording its highest reading since March 2019.

Kaley Crossthwaite, partner at BDO LLP, said: “The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy. 

“Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”

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