Business output, optimism and employment all fell in September as increased uncertainty amid mounting inflation takes its toll on businesses across the UK, according to the latest Business Trends report from accountancy and business advisory firm, BDO.
The latest numbers mark the first time all four of BDO’s Business Trends indices have fallen together since the first national lockdown in April 2020.
BDO’s Output Index fell for the second consecutive month to 94.30, its lowest reading since February 2021 when the UK’s output was curtailed by the third national lockdown. The index now sits below the 95-point mark, indicating a move into contractionary territory for UK output.
Output has been hit with shocks from both the demand and supply sides as high input prices increase costs for businesses and the cost-of-living crisis weakens consumer spending power. This has been reflected in the manufacturing and services output subcomponents which both recorded negative readings simultaneously for the first time since the lockdown in February 2021.
This slump in output coupled with growing economic headwinds have driven the sixth consecutive monthly decline in business optimism. BDO’s Optimism Index saw a significant fall of 4.48 points to 96.32 in September with further decreases expected over the coming months as the impact of a recession sets in.
Optimism is lowest amongst businesses in the services sector as firms grapple with the cost-of-living crisis curtailing discretionary spending, impacting the retail and hospitality subsectors in particular. Optimism across this sub-component now stands just above the 95-point contraction mark at 95.62.
As a result, businesses are exercising caution and slowing their employee headcount growth in the face of these hardships. This signalled the end of a 10-month positive growth streak for BDO’s Employment Index which declined for the first time since October 2021. The index fell 1.14 points in September to 114.19 as hiring intentions reached their weakest level since Q3 2021.
BDO’s Inflation Index also saw a marginal decline of 0.05 points in September but the index remains high at 119.00 points. This decline was driven by a drop in input inflation caused by falling commodity prices as global markets adjusted to a ‘new normal’ of weaker energy supplies. This outweighed the pressures from the depreciating pound towards the end of the month following the reactions to the government’s fiscal announcement.
Kyla Bellingall, head of the Midlands at BDO LLP, said: “A fall across output, optimism and employment is a stark warning sign for the economy, and it’s likely that there is further upheaval ahead.
“With energy prices expected to accelerate inflation towards the end of this year, and unemployment rates set to peak in mid-2023, we’re only just starting to see the recessionary impacts set in.
“Clearly businesses are in a bind. They’re already facing soaring costs and with a great deal of uncertainty ahead, hiring intentions are now taking a hit too. The past few years have shown the resilience of companies in the UK, but with increasing political uncertainty they need reassurance that they will receive the right support across the next few months and longer-term.”
