The index reached a 17-month low, sparking the fall but despite these headwinds, BDO’s Employment Index has remained resilient, surpassing pre-pandemic levels to reach its highest reading since January 2019.
However, economists predict that rising inflation and lower output promise a weakened long-term forecast as a recession looms.
In February last year, when the BDO Output Index was at its lowest, productivity was hampered by a third national lockdown. The index fell 2.66 points in June to 97.73 and now sits well below 100, which denotes long-term average growth. This decline was driven by low activity in the manufacturing and services sectors due to supply chain disruption, higher imported material costs and weakened consumer spending power.
Waning productivity has led to a corresponding dip in the Optimism Index for the third month in a row, as the decline in output and fears of a recession continue to affect business confidence. The index experienced a decrease of 0.10 to 101.83, its lowest reading since April 2021.
The labour market has remained resilient in the face of these downturns, however, with the Employment Index surpassing pre-pandemic levels to reach its highest figure since January 2019. June saw the eighth consecutive monthly increase for the index, which now stands at 114.56.
The Inflation Index reached a record high of 117.85. This was largely driven by a 3.05-point increase in the Input Inflation subindex, reflecting the continued upward pressure on input prices as a result of shortages, supply chain disruption and a weakening currency.
Kaley Crossthwaite, partner at BDO LLP, said the continued falls in output and confidence provide a stark warning of the challenges businesses face in the coming months, with a perfect storm of staffing shortages, an expected increase in the energy price cap, and weakened consumer spending.
“Despite its recent resilience, inflationary pressures and fears of a recession look to dampen the outlook for the labour market as economic activity is predicted to decline in the second half of this year,” she said.
