Business confidence remains positive for fourth consecutive month, BDO says

Business confidence remained above historic growth levels for the fourth consecutive month against a backdrop of expectations of further cuts to interest rates, according to BDO. 

The latest Business Trends report, which covers the first full month since Labour’s election to Government, showed services output rising to a two-year high of 99.03. 

Growth was driven by an uptick in new orders and a late summer tourism boost, which spurred consumer and business spending. Businesses also ramped up staffing levels to accommodate for heightened summer demand. 

The BDO Optimism Index fell slightly to 100.33 in August but remained in positive territory thanks to interest rate cuts. Optimism is expected to rise further over the coming months, supported by the anticipation of additional interest rate cuts following last month’s reduction to 5%.  

BDO’s Inflation Index also signalled that pressure on businesses could be easing. The Index fell for the first time in four months to 96.79. Although overall inflation remains above the Bank of England’s 2% target, both the input and consumer inflation sub-indices recorded declines, suggesting a slowdown in price increases.  

Despite these positive signals, the labour market continues to show signs of weakening. BDO’s Employment Index fell for the fourteenth consecutive month to 95.89 in August, its lowest reading since January 2013. 

This reflects ongoing concerns in the job market, including falling job vacancies and more people claiming unemployment-related benefits, which reached its highest level since December 2021 according to the Office for National Statistics. 

These indicators suggest further weakening in the labour market, with additional softening expected in the months ahead. Despite the Bank of England’s recent interest rate cut, these trends have yet to reverse, and economic consultancy Cebr now forecasts that the unemployment rate will peak in Q1 2025, later than initially expected.

Kaley Crossthwaite, partner at BDO said: “Despite ongoing inflationary pressures, it is good to see that businesses remain largely optimistic, with the services sector in particular continuing to be the cornerstone of economic growth. 

“The coming months will be crucial in determining whether the UK can maintain its recovery momentum and fight back against these headwinds. No doubt all eyes will be on the Autumn budget and the government’s plans for helping businesses tackle persistent unemployment levels and the skills gap.”