BDO’s Employment Index falls for third consecutive month

The BDO Employment Index recorded its weakest reading in nearly a decade, falling for the third consecutive month to 102.72 (-2.23 points), as businesses struggle to maintain staffing numbers amid higher borrowing costs, elevated wage growth and weaker customer demand.

According to the latest Business Trends report from BDO, business confidence, output and hiring intentions continued to fall in September as economic activity contracted amid ongoing inflationary headwinds and a looming threat of recession.

Whilst September’s figure remains in positive territory, further downward pressure on the Employment Index could follow as a recession looms.

The report highlighted that September marked the weakest reading on BDO’s Employment Index since September 2014, when recovery from the global financial crisis stalled.

Sectors currently witnessing the most pressure on jobs include construction, support services, food services, and wholesale and retail.

Additionally, the Output Index declined for a third consecutive month in September to 91.87, marking two months of recordings below the crucial 95-point that divides expansion from contraction.

The last time the Index hit such a low was in March 2021, when the economy was still subject to restrictions from the third national lockdown.

The report also revealed that the decline in output was driven by manufacturing, which fell back into negative territory in September with a reading of 90.10 as pressure on commodity prices drove down production levels for manufacturers.

While the services sector sub-index rose slightly to 92.09, it remained in negative territory for the third consecutive month.

The sub-95 readings on both Services and Manufacturing Output Indices suggests two of the economy’s major sectors are tightening with quarterly GDP contractions forecasted over the next two quarters.

Against this backdrop of continued cost of living pressures, elevated interest rates, and weak output, UK business confidence also slipped in September for the second time in the three months, falling to 99.79.

The 0.57-point downturn was driven in large part by the drop in output across the manufacturing sector, heightened borrowing costs, and uncertainty over government policy.

However, September saw a slight uptick in BDO’s Inflation Index, reaching 100.52, having stood at 100.47 in August – putting an end to ten consecutive months of decline.

The Inflation Index last saw a monthly uptick in October 2022, when prices were subject to upward pressure as a result of rising energy bills.

This month’s increase was driven by a rise in commodity prices amid curtailed supply chains. Consumer price inflation is expected to have continued decelerating, with inflation appearing to have passed its peak in many key consumption categories such as food, transport, and energy.

Kaley Crossthwaite, partner at BDO LLP, said: “An even more pessimistic outlook from businesses, declining output and the lowest reading on the Employment Index in nine years are mounting indicators of the slowdown in economic activity predicted over the winter months.

“With the threat of recession on the horizon, businesses are understandably feeling the pressure. More needs to be done to offer businesses support to weather the storm and drive their growth through the challenging months ahead.”