Employment hits new decade low as labour market continues to unwind

• BDO’s Employment Index falls for sixth consecutive month, recording weakest reading since August 2013
• Further declines expected as the labour market continues to cool 
• Marginal upticks in business Optimism and Output driven by the services sector, but further declines predicted 

Hiring intentions have hit a new decade low as the labour market continues to cool according to the latest Business Trends report from accountancy and business advisory firm, BDO. This comes amid predictions from economic consultancies such as Cebr that UK entered a recession in H2 2023, and growth will flatline in Q1 2024. 

December saw BDO’s Employment Index fall for the sixth consecutive month, reaching 99.12 points, which marks its weakest reading since August 2013. Despite pay growth slowing, the labour market is expected to unwind further with unemployment rising and vacancies down over the year ahead, putting downward pressure on the Employment Index. Cebr projects a continued rise in the unemployment rate in the upcoming months to reach a high of 4.6% over Q2 and Q3 2024.

Small upticks in Optimism and Output over festive period 

In contrast, the Output Index rose marginally by 0.90 points in December to 98.25, marking a second consecutive month of improvement following November’s increase of 1.81 points. This brought the Index to its highest level since August 2022, when inflation in the UK was just starting to peak at levels in excess of 10%. 

The increase in output was largely driven by improvements in the services sector, which experienced strong demand over the festive period. Nonetheless, UK GDP Growth is expected to flatline over coming months as elevated borrowing costs and inflation continue to bite, with weak readings anticipated for the Output Index across Q1 2024.

BDO’s Optimism Index rose by just 0.10 points in December, traditionally a golden trading month for businesses, to reach 98.44, which was also driven by the Services Sub-Index. The Optimism Index for December continues to indicate a growth trajectory for business confidence. However, this growth remains modest, falling below the historic trend growth, as reflected in the readings exceeding 95 but remaining below 100. This has persisted throughout the broader Optimism Index over the past year, with readings pointing to below trend growth on this measure in ten of the last twelve months. Consumer pressures including the cost-of-living crisis and reduced discretionary spending have continued to bite, alongside uncertainty driven by international conflict. 

Looking ahead, optimism is expected to decline again in the coming months due to ongoing uncertainty around interest rates, along with persistent weak demand and challenging growth prospects, which will continue to present hurdles for businesses.

Businesses enter 2024 on a more positive footing despite challenging months ahead 

Despite the fall in the Employment Index and flatlining growth across Optimism and Output, businesses are still entering 2024 on a more positive footing than the previous year, when there was mounting and widespread uncertainty about when interest rates would peak. In a beacon of hope for businesses, BDO’s Output and Optimism Indices are up 2.04 points and 6.55 points respectively in comparison to December 2022, suggesting companies are entering 2024 with a brighter perspective than this time last year. This is the first time since December 2021 when COVID-19 vaccinations efforts were well underway that the Optimism and Output Index have risen together. 

Kaley Crossthwaite, Partner at BDO LLP, said: “It's encouraging to see our resilient services sector spearheading a small upturn in Optimism and Output during December, as the festive season offered a welcome respite for businesses. 

“As companies gear up for 2024, it is critical that businesses see renewed support from the government to enhance their productivity, increase their recruitment and bolster their skills. Only with this support can we continue to revive the economy.” 
 
ENDS

Note to editors

Methodology
 
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world. 
 
The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.  
 
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.  
 
BDO LLP
BDO LLP operates in 18 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
 
BDO’s global network
The BDO global network provides business advisory services in 164 countries, with 95,000 people working out of 1,713 offices worldwide. It has revenues of $11.8bn.
 
Business Trends
BDO’s Business Trends is the ‘poll of polls’ regrouping data from the UK’s main business surveys, calculated by taking a weighted average of the results.
 
BDO’s Employment, Inflation, Optimism and Output Indices are the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months), the Bank of England Agents’ summary of business conditions, the Markit and Chartered Institute of Purchasing and Supply’s (CPS) Surveys of Manufacturing and of Services; the DG ECFIN industrial and services confidence indices; the RICS construction market survey; the Manpower Employment Outlook Survey; and Eurostat’s monthly business surveys.
 
Taken together the surveys cover over 4,000 different respondent companies, covering a range of different industries and business functions, and make up the most representative measure of business trends available.

Contacts    

Email: media@bdo.co.uk 
 
Tayla Garrety
Email: tgarrety@headlandconsultancy.com
Tel: +44 (0)7776 692736
 
Ella Hatfield
Email: ehatfield@headlandconsultancy.com
Tel: +44 (0)77 9868 7042