Business confidence in the UK has remained above historic growth levels for the fourth consecutive month, buoyed by expectations of further interest rate cuts. According to the latest Business Trends report from BDO, optimism in the business sector continues to rise despite broader economic challenges.

The report, covering the first full month following Labour’s victory in the general election, showed a significant boost in services output, which climbed to a two-year high of 99.03.

The rise was primarily driven by a late-summer surge in tourism, increased consumer spending, and new business orders, leading companies to hire additional staff to manage heightened demand​.

While the BDO Optimism Index fell slightly to 100.33 in August, it remained in positive territory. This optimism is expected to increase further in the coming months, thanks to last month’s interest rate cut to 5% and the anticipation of more reductions on the horizon​.

On the inflation front, BDO’s Inflation Index showed signs of easing, dropping for the first time in four months to 96.79. Both input and consumer inflation indices recorded declines, suggesting a slowdown in price increases, although inflation remains above the Bank of England's 2% target​.

Employment Index Hits a 10-Year Low

Despite positive trends in output and optimism, the UK labour market continues to show signs of weakness.

BDO's Employment Index fell for the 14th consecutive month in August, reaching 95.89, the lowest level since January 2013. This reflects ongoing challenges in the job market, including falling job vacancies and an increase in unemployment-related benefits​.

Kaley Crossthwaite, Partner at BDO, acknowledged that while businesses, especially in the services sector, are maintaining optimism, persistent issues like unemployment and a widening skills gap remain key concerns. The upcoming Autumn budget will be crucial in addressing these challenges​.