Service output fell at steepest rate since September 2022 amid higher costs

The UK’s post-summer economic rebound has been short-lived, according to the latest Business Trends report from business advisory and accountancy firm BDO LLP.

BDO’s Output Index declined to 98.53 in September, down from 101.21 in the previous month and falling below the 100-point threshold which represents long-term average growth levels over the past 15 years.

After exceeding 100-points in August for the first time in over three years, September’s decline signals that UK business momentum has once again stalled.

This decline was largely driven by the services sector, where output fell from 102.06 to 99.07, marking the sharpest month-on-month fall since September 2022, when UK inflation had just hit double digits.

The downturn reflects a combination of ongoing pressures from April’s payroll tax changes, dampened demand from economic uncertainty, and wet weather conditions in September, all of which collectively weakened consumer activity.

Manufacturing output also slipped slightly from 94.53 in August to 94.28 in September, as supply chain disruptions and lingering trade uncertainty constrained production.

Looking ahead, growth is likely to remain muted, as high inflation, subdued consumer demand and a cooling labour market leave little room for interest rate cuts needed to boost recovery.

Business outlook hinges on Budget as Employment hits 13-year low

Wariness ahead of the Autumn Budget weighed on businesses in September, as they stayed in “wait mode” ahead of potential policy announcements. The labour market continues to unwind with the BDO Employment Index –which tracks wider market trends including headcount, vacancies and hiring expectations – remaining on its general downward trend seen since late 2023.

As firms remain cautious amid payroll costs and policy uncertainty, BDO’s Employment Index fell to 93.90 in September, representing another 13-year low. Vacancies and headcount expectations are both down, with the data showing business’ expectations for additions to headcount at their lowest since the pandemic.

Against a challenging backdrop for business, BDO’s Optimism Index still rose in September to 93.38, up from 93.18 in August, its second consecutive monthly increase. Gains were seen across both manufacturing and services, with manufacturing confidence reaching its highest level since October 2024. This was a result of improved confidence in order books and external investment announcements such as the US-UK Technology Prosperity Deal. Manufacturing businesses remain hopeful that leanness in inventories will pave the way for more consistent production levels.

Scott Knight, Head of Growth at BDO, said, “The uptick we saw in August was a false dawn.

“While there is a kernel of hope amongst the mid-market, it is fragile, and they need clarity from the top before they can take any meaningful investment risks.

“Fiscal signals will be crucial in the run up to the Budget with all eyes on the Chancellor to deliver the so called ‘Securonomics’ needed to create an environment for longer term business planning.”