UK employment stagnates at 13-year low

The UK’s employment outlook remains stagnant, with labour market stuck near its lowest level in over a decade, even as the broader economy shows early signs of a summer recovery, according to the latest Business Trends report from accountancy and business advisory firm BDO.

The Employment Index fell again in June to 94.22 from 94.32 the previous month, nearly at a 13-year low.

Despite some positive output signals from the services sector, hiring remains subdued as businesses continue to grapple with cost pressures, most notably the increase in National Insurance Contributions (NICs) introduced in April.

Demand for labour is adjusting in response, with many firms holding back on recruitment.

This caution is reflected in payrolled employment figures, which fell by 109,000 in May — nearly twice the drop seen in April — pointing to a possible acceleration in job losses.

Business confidence continues to remain underwhelming, with BDO’s Optimism Index falling to 91.58 from 92.30 in the previous month.

Core cost pressures, particularly around labour, continue to drag on margins, with the prospect of further tax rises in the Autumn adding further to a cautious sentiment. Greater certainty following recent trade agreements with the US, EU and India offered a small boost to manufacturing business sentiment, but the sector remains volatile with no clear easing of these headwinds in sight.

BDO’s Business Trends report predicts optimism will stay well below long-term averages through the second half of the year.

There are some positive signals in the UK economy, with the BDO Output Index rising from 97.16 in May to 97.51 at the end of June, marking two months of consecutive increase.

This marginal growth was again propped up by the services sector, where activity climbed to 97.75. Easing inflationary pressures and reduced uncertainty around trade deals are beginning to lift the Index, whilst good weather in June – particularly during key events in the hospitality calendar such as Royal Ascot – likely supported consumer spending and boosted activity across hospitality and leisure.

Scott Knight, Head of Growth at BDO, said: “We’re seeing early signs of recovery in business output, largely down to the services sector who have buoyed the economy for a second month in a row.

“But, as we all know, we can’t rely on good weather forever. Businesses are treading carefully in wait-and-see mode when they need to be bold in their recruitment and investment.  Without lower labour costs, clear signalling from government and a stable policy environment, growth will remain subdued.”