The most recent BDO Business Trends report highlights that the output and optimism indices are now in contractionary territory, below the 95-point mark, regarded as the watershed between growth and decline and an indicator of a recession.
BDO’s Inflation Index also reached a record high after the energy price cap increases in October and rising inflation and dampened outlook have driven a fall in employment with further declines expected in coming months.
The latest figures indicated that inflationary pressures are to blame for the decline across three of BDO’s four indices, as optimism, output and employment all recorded their weakest readings for at least six months.
BDO’s Inflation Index reached a record high in October forcing businesses to re-evaluate production in line with demand and supply-side headwinds and exercise caution in their outlook and hiring intentions.
The dip in productivity was driven by a fall across both the services and manufacturing indices for the second month in a row. Continued disruption to global logistics networks and increased input prices have pushed manufacturing activity into negative territory, whilst the cost-of-living crisis has impacted consumer demand, driving down services output.
Confidence among businesses followed a similar downward trajectory as the weaker macro-economic environment drove a seventh consecutive month of decline for BDO’s Optimism Index.
Hiring intentions are set to decline in the longer term as businesses continue to tackle mounting inflation and a recession, resulting in further falls in the index over the coming months.
Kaley Crossthwaite, partner at BDO LLP, said a contraction in both optimism and output is a concerning bellwether for firms as inflation is expected to continue climbing in the run-up to Christmas.
“A weaker currency and drop in consumer spending power will have real and tangible consequences for firms relying on imports or customers in the retail and services sector, alongside the knock-on effects of managing political and economic uncertainty,” she said.
“We also know that rising energy costs are a top concern for nearly half of mid-sized businesses this winter as we’re only just beginning to see the impacts of the energy price cap rise. Firms will be looking to the Autumn Statement for the support they need as they navigate a tough period ahead.”
