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UK business confidence falls to lockdown levels as recession looms

A plaza in Canary Wharf in east London. Business confidence was at its lowest since the third lockdown
Business confidence: The dip in output productivity was driven by a fall across both the services and manufacturing indices for the second month in a row. Photo: Press Association (PA)

UK business confidence fell to its lowest level since the third national COVID lockdown, as firms continue to be spooked by a looming recession.

The latest edition of BDO’s business trends report revealed that both business optimism and output declined to the lowest levels since February 2021 in October to 94.63 and 93.10, respectively.

Both indices now sit in contractionary territory, below the 95-point mark — regarded as the watershed between growth and decline, an indicator of a recession.

The dip in output productivity was driven by a fall across both the services and manufacturing indices for the second month in a row.


Continued disruption to global logistics networks and increased input prices pushed manufacturing activity into negative territory, whilst the cost of living crisis impacted consumer demand, driving down services output.

Confidence amongst businesses followed a similar downward trajectory as the weaker macroeconomic environment drove a seventh consecutive month of decline for BDO’s Optimism Index.

Read more: UK construction activity continues to rise but new orders fall

BDO’s inflation index also hit a record high of 120.67 during the month, after energy price cap increases in October. This forced firms to re-evaluate production in line with demand and supply-side headwinds, and exercise caution in their outlook and hiring intentions.

This coupled with a dampened outlook, drove a fall in the employment index to the weakest reading for at least six months, with further declines expected in coming months.

The accountancy and business advisory firm said the employment index dropped 1.14 points to 13.05 last month, mirroring waning confidence among businesses.

However, the index has remained resilient, and the unemployment rate stood at a historic low of 3.5% on the most recent reading in the three months to August.

Despite the index remaining firmly in positive territory, hiring intentions are set to decline in the longer-term.

Read more: Interest rates hiked to fresh 33-year high by Bank of England

“A contraction in both optimism and output is a concerning bellwether for firms, as inflation is expected to continue climbing in the run-up to Christmas. A weaker currency and drop in consumer spending power will have real and tangible consequences for firms relying on imports or customers in the retail and services sector, alongside the knock-on effects of managing political and economic uncertainty,” the report said.

“We also know that rising energy costs are a top concern for nearly half of mid-sized businesses this winter as we’re only just beginning to see the impacts of the energy price cap rise. Firms will be looking to the Autumn Statement for the support they need as they navigate a tough period ahead.”

The data comes as the BoE warned this week that Britain faces its longest recession since the 1920s.

Threadneedle Street said that the UK economy could fall into eight consecutive quarters of negative growth if current market expectations prove correct. It would be the longest period of uninterrupted decline that the nation has experienced for around a century.

However, it would be a milder recession than in previous times.

Watch: What is a recession and how do we spot one?