Business confidence declines among manufacturers in July

Hiring intentions and business confidence experienced declines across both the services and manufacturing sectors in July with economic growth also set to slow, according to the latest Business Trends report from BDO.

This comes as the firm’s employment index fell for the first time in six months, as businesses reduced vacancies whilst battling higher interest rates, weak global demand, and ongoing supply difficulties. 

The number of vacancies fell by 85,000 in the second quarter, while the firm said that pay growth cooled. BDO also highlighted a more pessimistic business outlook, which was highlighted by its optimism index falling in July for the first time in four months. 

The 0.78-point downturn was driven by negative sentiment among manufacturers, who have been particularly exposed to elevated borrowing costs. These headwinds saw manufacturing optimism stand at 93.56, a fourth consecutive month below the crucial 95-point mark which divides expansion from contraction.

Whilst services optimism also declined by 1.10 point to 99.57 in July, the sub-index remained above the 95-point mark, indicating net-optimism across the sector despite the weaker reading. 

Further declines in both optimism and employment are expected with threats of a recession looming for the fourth quarter and early 2024.  

Kaley Crossthwaite, partner at BDO LLP, said: “A more pessimistic outlook from businesses and consequent loosening of the labour market are the first indicators of the slow in economic growth expected towards the end of the year.

“With yet another hike in interest rates from the Bank of England last week, this downturn is only set to worsen in what should be a golden quarter for many, if more isn’t done to support businesses.”