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According to a report released by BDO on Monday, UK businesses are experiencing a period of sustained growth, primarily driven by a strong performance in the services sector, despite ongoing challenges in the labour market.
The Business Trends report from the advisory and accountancy firm highlighted that business confidence has remained above historical growth levels for four consecutive months. This sustained confidence is largely attributed to expectations of further interest rate reductions. The services sector saw a significant increase in output, reaching a two-year high, primarily due to a surge in new orders and a boost from late summer tourism.
This growth has spurred both consumer and business spending, leading companies to expand their workforce to meet the increased seasonal demand. Despite this positive trend, the overall optimism index for August experienced a slight dip to 100.33, though it remained in positive territory. The recent interest rate cut to 5% and the anticipation of additional cuts have supported this optimism.
Inflationary pressures have also shown signs of easing. BDO’s Inflation Index fell for the first time in four months to 96.79. While inflation remains above the Bank of England’s 2% target, the slowdown in both input and consumer price increases suggests a potential reduction in cost pressures for businesses.
Nevertheless, the report noted persistent issues within the UK labour market. BDO’s Employment Index declined for the 14th consecutive month to 95.89, marking its lowest level since January 2013. This decline reflects growing concerns about job vacancies and increasing unemployment claims. Economic consultancy Cebr projects that the unemployment rate will peak in early 2025.
Kaley Crossthwaite, a partner at BDO, commented on the findings, noting that despite ongoing inflationary pressures, businesses remain largely optimistic, with the services sector continuing to be a key driver of economic growth. Crossthwaite emphasized that the coming months will be critical in determining whether the UK can sustain its recovery and address persistent challenges such as unemployment and the skills gap.
Attention will likely turn to the Autumn budget and the government’s strategies for supporting businesses through these ongoing economic issues.
