UK business confidence remains high ahead of Budget

Business confidence remains high but at a crossroad amid looming Autumn Budget, ongoing challenges in the jobs market, and continued macroeconomic volatility, according to the latest data from the BDO Business Trends report.

UK business confidence rose slightly in September as companies pinned their hopes on further interest rate cuts this year, despite a weakening labour market, stubborn inflation and uncertainty around the new Labour Government’s first Autumn Budget.

The BDO Optimism Index rose to 100.42, remaining above the 100-point mark for a fifth consecutive month – a strong indicator of confidence in the business community. However, this increased optimism stands in stark contrast to the challenges faced by many businesses. The BDO Output Index dropped by 1.52 points to 98.19 in September, as both the manufacturing and services sectors struggled to maintain momentum from the previous month.

Manufacturing, in particular, faced renewed job cuts due to subdued demand, while supply chain disruptions and rising shipping costs, exacerbated by the Red Sea crisis, have led to longer delivery times and higher raw material costs.

While Output in the services sector also dipped compared to the previous month, it remained elevated relative to the last two years and above the 95-point mark that indicates overall growth. This was largely fuelled by a rise in domestic demand, notably across the technology, real estate and leisure sub-sectors. However, businesses within the service sector have noted that uncertainty surrounding the upcoming Autumn Budget has prompted clients to delay their investment decisions.

The BDO Inflation Index eased slightly in September, dropping to 96.41. But whilst input prices decreased, the persistent rise in consumer prices – particularly for services – suggests that inflationary pressures could resurface in the coming months.

Meanwhile, the BDO Employment Index saw its fifteenth consecutive decline, dropping to 95.45 – its lowest point since January 2013.

According to the Office for National Statistics (ONS), UK job vacancies fell by 42,000 in the three months to August, marking the 26th period of consecutive decline. While unemployment has eased slightly, the volatility in labour market data signals that businesses are treading cautiously in their hiring decisions amid continued economic uncertainty.

Kaley Crossthwaite, Partner at BDO said: “As the Autumn Budget draws closer, businesses are looking to the new Government for a clear roadmap.

“Optimism may prove fragile if policy decisions don’t deliver the necessary support and clarity, especially whilst the Employment Index shows signs of sustained weakness.

“Promising areas like technology offer a beacon of hope, but targeted government investment, especially around skills development, is needed to help stimulate jobs growth,” she added.

Commenting on the latest data from the BDO Business Trends, Neil Rudge, Chief Banking Officer, Commercial at Shawbrook, said: “Business confidence has been steadily rising in recent months, as highlighted by the latest data from the BDO, whose confidence index rose further to 100.42.

“Our own research reveals that 9 in 10 (86%) business leaders are optimistic about their prospects. With a potential interest rate cut on the horizon—whether next month or further down the line —many businesses will be reconsidering their plans and funding requirements as borrowing costs begin to fall. We’re seeing consistent demand for funding, a clear sign of the optimism and growth mindset that is increasingly common among the UK’s SMEs.”