The latest Business Trends report from business advisory and accountancy firm BDO LLP, shows UK economic output in August reached its strongest point since 2021.
BDO’s Output Index rose to 100.82 in August, its highest level for over three years and the first time it has crossed a threshold that points to stronger economic activity.
The uplift was driven by the services sector where output increased from 100.19 in July to 101.62, reflecting firmer consumer demand and seasonal summer spending.
Gains in the services sector helped offset weaker manufacturing activity, which slipped to 94.51 from 96.31 amid declining orders and ongoing trade uncertainty.
Business confidence also strengthened, recording its sharpest monthly rise in over a year. BDO’s Optimism Index increased to 93.18 in August, up from 91.96 in July. The services sector was the main driver, lifted by stronger investment and expectations of a modest rebound in consumer spending. The manufacturing sector showed a marginal improvement, rising to96.65 from 96.50.
While sentiment is beginning to recover from the lows seen for most of this year, it remains well below historic norms. Uncertainty around potential tax rises in the Autumn Budget continues to weigh on confidence and is preventing a more decisive rebound.
Labour market remains under strain as hiring slows further
The labour market continued to decline, with BDO’s Employment Index falling to 94.01 in August- its lowest reading since October 2012. Falling vacancies have been driven by a freeze in hiring intentions along with shrinking payrolls and slowing wage growth, which all point to a sharp slowdown in hiring.
As employers continue to grapple with this year’s rise in National Insurance Contributions (NICs) and higher National Living Wages, labour budgets remain tight. Economic analysis from the Centre for Economics and Business Research (Cebr) forecasts unemployment will peak at 4.8% in Q3 of 2025 and stay elevated into early 2026.
Scott Knight, Head of Growth at BDO, said, “The services sector has experienced much volatility this year, and only last month, was struggling under persistent cost pressures and weak overseas demand.
It is therefore encouraging to see the sector bouncing back and driving overall output growth, demonstrating its importance to the health of the economy. Meanwhile employment remains under pressure, and the Government now needs to double down on its employment and upskilling ambitions. Businesses are waiting for the Autumn Budget with bated breath. If it further adds to business costs, it risks stalling the recovery just as momentum is beginning to build.”
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