UK business output and confidence rises in April, BDO finds

UK business output and confidence rose in April despite ongoing inflationary pressures and the continued decline of hiring intentions, according to the latest Business Trends report from BDO.

BDO’s Output Index rose by 2.09 points to 103.92 in April, marking the highest level since May 2022. This was driven largely by the services sector, with the Services Output Subindex rising “sharply” by 3.15 points to 104.84. 

Businesses monitored by this subindex include hospitality, retail and leisure firms, which all experienced better trading conditions as costs including energy bills declined. Falling consumer price pressures have also led to more spending on these services.

Although BDO’s Manufacturing Output Subindex fell to 96.64 as a result of tighter monetary conditions hitting manufacturers’ costs, it remained above the 95-point watershed separating expansion (>95) and contraction (<95).

This improved output was mirrored by a “cautiously optimistic” outlook for businesses, with BDO’s Optimism Index experiencing an uptick. The index rose slightly to 99.88, with both services and manufacturing buoyed by easing inflationary pressures and the prospect of an interest rate cut by Autumn.

This comes as BDO’s Inflation Index dropped below the 95-point to 94.94, entering contractionary territory for the first time since February 2021, when the third national lockdown dampened demand. It also reflects the lower energy price cap which came into effect in April. 

However, the impact of the cost of living crisis and inflationary pressures remains “elevated”, according to the firm. According to BDO, they are expected to continue weighing on business confidence and “prevent it rebounding significantly” until an interest rate cut comes into effect. 

Indicators such as core inflation and services inflation, a measure of price pressures facing consumers, remain historically high at 4.2% and 6.0% respectively. Fuel prices also rose due to the escalation of conflict in the Middle East.

Elsewhere, BDO’s Employment Index recorded its tenth consecutive month of decline, falling to 97.21, the index’s weakest reading since February 2013, when the worst effects of the global financial crisis on unemployment were recorded. In its history, the Employment Index has never before fallen continuously for this many months. 

However, a potential interest rate cut later in 2024 is expected to cause the decline in hiring intentions to peak. 

Kaley Crossthwaite, partner at BDO, said: “Cautious optimism is the order of the day for UK businesses hoping for an interest rate cut this summer.

“It’s heartening to see a turning point begin to materialise for the economy, with the services sector driving the bounce back so far from last year’s technical recession. But, businesses across the board need more certainty from the government, only once they have this will we start to see the more stable optimism, investment and hiring intentions needed for a robust recovery.”