UK (Parliament Politic Magazine) – According to the latest Business Trends report from BDO, hiring intentions and business confidence in both the services and manufacturing sectors experienced declines in July, signaling a slowdown in economic growth.
BDO’s Employment Index fell for the first time in six months as businesses reduced job vacancies due to higher interest rates, weak global demand, and ongoing supply difficulties. In Q2, the number of vacancies decreased by 85,000, and pay growth cooled.
Decline In Hiring In UK Business Sector
This decline in hiring intentions coincided with a more pessimistic business outlook, as indicated by BDO’s Optimism Index, which fell in July for the first time in four months. The 0.78-point downturn was primarily driven by negative sentiment among manufacturers, who have been particularly affected by elevated borrowing costs. Manufacturing optimism stood at 93.56, marking the fourth consecutive month below the critical 95-point threshold that separates expansion from contraction.
Although services optimism also declined by 1.10 points to 99.57 in July, the sub-index remained above the 95-point mark, indicating overall optimism in the sector despite the weaker reading. However, further declines in both optimism and employment are anticipated, with the looming threat of a recession in Q4 and early 2024.
BDO’s Putput Index Reported Contrasting Stories
BDO’s Output Index revealed contrasting stories for the manufacturing and services sectors. Manufacturing output experienced a sharp drop to 77.26, its lowest reading since May 2020 when the sector was severely impacted by the initial national COVID-19 lockdown.
Overall, the report highlights the challenges faced by businesses in the current economic climate, with hiring intentions, business confidence, and output levels showing signs of decline.
However, a 5.22-point increase in services output drove an overall improvement of the headline index to 96.15 in July. Output now remains just above the contraction point of 95, indicating marginal growth.
In July, BDO’s Inflation Index fell by 2.72 points to reach 100.96, its lowest reading in over two years. This decline is expected to reflect a slowdown in consumer inflation due to a drop in energy prices following Ofgem’s lower price cap. There was also a decrease in input price inflation, reaching 91.01, reflecting the declining prices in global commodity markets.
Rising Interest Rates Are The Reason Behind Decline In Hiring
In response to this news, Steven Mooney, CEO of FundMyPitch, stated, “It is evident that rising interest rates are causing business owners to cut costs at a time when the country needs growth.”
Mooney continued, “Entrepreneurs are also struggling to access the funding and support they require to make crucial investments in staff and business development. It is absurd that organizations, which provide the majority of employment for the UK, are not being given the platforms they need to attract investors and unleash their true potential. By supporting the next generation of up-and-coming companies, we can revive Britain’s economy and boost confidence during these uncertain times.”
Josh Boer, director at tech consultancy VeUP, added, “SMEs are vital to the UK economy, creating jobs, spreading opportunities, and enabling growth. Too many companies with ambitious plans and exciting products and services are being overlooked when it comes to securing financial backing.”
“If we want to revive the economy and stimulate growth, we must support the next generation of entrepreneurs, equipping them with the necessary skills, technology, and funding to thrive despite the challenging economic outlook,” he concluded.
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New Firms Looking To Drive More Revenue With Less Staff
Khalid Talukder, Co-Founder of DKK Partners, emphasized the importance of organizations seeking new opportunities to drive revenue amidst the current economic challenges. Many business owners are eager to expand their exports, enter new markets, and accelerate international trade, but they lack the necessary payments infrastructure to operate effectively.
Talukder believes that by revamping existing systems and embracing fresh trading opportunities, Britain’s businesses can be re-energized and look forward to a positive future. Kaley Crossthwaite, Partner at BDO LLP, expressed concern about the pessimistic outlook of businesses and the resulting impact on the labor market. These indicators suggest a slowdown in economic growth towards the end of the year.
Crossthwaite also highlighted the recent interest rate hike by the Bank of England, which is expected to further worsen the economic downturn. This is particularly concerning as it coincides with what should be a prosperous quarter for many businesses.
To reverse these trends, the government must collaborate more closely with the industry to provide tailored support for businesses of all sizes. This support is crucial for weathering the storm, making investments, and fostering growth.