Services sector keeps UK output growing as business confidence continues to fall
Services sector keeps UK output growing as business confidence continues to fall
- BDO’s Output Index ends 2024 in stronger position than start of the year thanks to resilient services sector
- Employment hits new 12-year low with weakest Index reading since December 2012, amidst declining job vacancies and payrolled employees
- Rising inflation and increasing employment costs continue to dampen business confidence
In 2024, easing inflationary pressures and a gradual loosening of monetary policy led to a moderate improvement in UK output, with the Index demonstrating an overall positive value across the course of the year. Despite this, BDO's Output Index experienced a slight decline in December, falling to 97.68 from 97.91 the previous month. This was primarily due to the manufacturing sector grappling with weak domestic market sentiment, poor export sales and a restructuring of operations ahead of increases to employer National Insurance contributions (NICs) and the National Living Wage (NLW) later this year.
The Output Index was prevented from falling further by a stronger performance amongst businesses in the services sector. The Services Output Sub-Index rose from 95.03 to 98.75 in December, marking its highest reading of the year, due to an uptick in business activity.
However, inflation and rising employment costs caused business confidence to continue to fall in December from 94.66 to 93.41. This follows a sharp fall in the Optimism Index in November, as businesses reacted to the employment measures announced in the Budget. Current levels of optimism are comparable to those observed in late 2022 and early 2023, when headline inflation was around 10% and the economy was nearing a period of contraction.
The Employment Index hit a new 12-year low in December, with its weakest Index reading since 2012, amidst declining job vacancies and payrolled employees. Looking ahead, hiring intentions are expected to decline further as businesses adjust to increased NICs and wage growth, which is likely to cause the Employment Index to fall again during early 2025. However, interest rate cuts may help alleviate some of this pressure.
Inflation is also expected to persist and continue weighing on business confidence throughout 2025, with poor growth prospects remaining a risk. Nevertheless, optimism may start to rise again gradually over the coming months, as interest rates fall and businesses adjust to new policies from the Budget coming into effect.
Kaley Crossthwaite, Partner at BDO, said: “2024 was a turbulent year with significant changes to the business landscape. As this environment continues to evolve with the introduction of new policies, unstable inflation and a loosening of the employment market, businesses continue to do their best to adapt and keep pace with the challenges thrown at them.
“The Government needs to create a stable operating environment with targeted support to drive growth in 2025.”
ENDS
Overview of the BDO indices
An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.
BDO’s Business Trends is a ‘poll of polls’ and comprises multiple surveys covering 4,000 respondents. Further information on outputs is available on request, but please note the Labour Force Survey is not one of them.
| December 2024 (Figures for this report) | November 2024 | October 2024 |
September 2024 |
|
| BDO Optimism Index | 93.41 | 93.49 | 99.30 | 100.42 |
| BDO Output Index | 97.68 | 97.91 | 98.16 | 97.79 |
| BDO Inflation Index | 96.86 | 96.50 | 95.92 | 96.41 |
| BDO Employment Index | 95.14 | 95.56 | 96.00 | 95.45 |
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