The BDO Business Trends report found that hiring intentions among UK businesses remain strong despite a turbulent outlook across output and inflation rising to its highest level since 2019.
The BDO Employment Index soared to 114.79 in July up 0.23 points on June. Staff shortages heightened by Brexit and the COVID-19 pandemic have been driving a buoyant labour market as firms push hard to recruit. This can be seen in the unemployment rate that stood at 3.8 per cent in the three months to May.
However, BDO’s Inflation Index showed no sign of slowing, reaching a further record high of 118.72. Growth was driven by increases across both the input inflation and consumer inflation indices, with the former recording its highest-ever reading of 121.19 due to a weakening currency, supply side shortages and significant supply chain disruption.
This tough inflationary environment and the threat of a recession look to diminish employers’ hiring intentions towards the end of this year, mirroring the trend of decline that was seen by the Employment Index during the 2008 financial crisis.
In line with the decline in economic activity, BDO’s Optimism Index fell 0.30 points to 101.53, its lowest point since April 2021. While both the services and manufacturing subindices experienced a fall, the overall decline was driven mostly by the latter with a 0.69-point decrease.
Lower business confidence aligns with an overall dip in BDO’s Output Index, which remains below 100, the measure indicating long-term growth, for the second consecutive month. However, the Output Index posted a slight increase overall of 0.42 points in July to reach 98.66, led by an uptick in consumer activity across the manufacturing and services subcomponents.
Kaley Crossthwaite, partner at BDO LLP, said reports of a less optimistic outlook are not surprising as the economy faces the prospect of a recession towards the end of the year.
“Although it’s encouraging to see recruitment intentions remain strong, we know that talent shortages are an issue, with many businesses reporting they are struggling to find people with the right skills,” she said.
“Despite the current hiring activity, we’re likely to see demand for labour and the Employment Index decline later in the year, with employers devoting their resources to managing inflation, interest rate rises, and ever-growing energy costs.”
