BDO records lowest inflation index in 12 months

BDO’s inflation index recorded its lowest reading for 12 months, with business optimism remaining positive as input price pressures eased, according to the firm’s latest business trends report. 

Overall, the inflation index declined by 2.19 points to 110.99, its lowest reading since March 2022, which was driven by a 5.77-point fall in the input inflation subindex as supply chain pressures gradually subsided and wholesale energy prices fell.  

The fall in the headline index was softened by an increase in the consumer inflation subindex, as a 1.41-point increase saw it rise to a three-month high of 118.53. This was impacted by a steep rise in consumer price inflation in February, particularly for the food and hospitality sectors. 

Despite accelerating price pressures, consumer spending has remained resilient which, combined with slowing input price pressures, have improved the outlook for businesses. 

March saw the output index reach a seven month-high at 99.48, its strongest reading since August 2022 when it stood at 100.25. This suggests the economy grew in March, driven by the services sector which exceeded the 100-point threshold for growth for the second consecutive month to now sit at 100.95.  

The manufacturing output subindex also rose in March, climbing 2.73 points following the 0.59-point decline seen in February. While the subindex still remains in contractionary territory, it is likely this will continue to improve as input price pressures and supply chain difficulties ease further.  

While there are expectations that unemployment may rise due to a likely recession, this isn’t anticipated to reach the same levels seen during the Covid-19 pandemic or in the aftermath of the financial crisis. 

Kaley Crossthwaite, partner at BDO, said: “It’s encouraging to see business optimism leading to renewed hiring intentions once more as businesses see input price and supply chain pressures ease slightly. Improvements in the output and inflation indices will only lead to a better outlook, as they work to drive growth and leave signs of a downturn in the past. 

“However, with the less generous energy bills discount scheme now in place and expectations of a recession remaining, the economy is likely to face further headwinds despite recent resilience. Businesses need as much certainty and support as possible to continue weathering the persistent challenges ahead.”