A key optimism index has hit its highest levels since the initial post pandemic surge, indicating that the new government has ushered in more positive sentiment among businesses.
The latest business trends report from international advisory and accountancy giant BDO has found that companies are “exhibiting encouraging signs of optimism and potential recovery” despite a recent growth in unemployment and economic inactivity.
The BDO Optimism Index has remained above the 100-mark for the second consecutive month, standing at 102.09 in June, down slightly from 102.30 in May. These are the highest levels seen since mid-2022, when the post-pandemic optimism was punctured by Russia’s invasion of Ukraine.
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However, BDO’s employment index has declined for the twelfth consecutive month, reaching 96.77 in June, signalling ongoing challenges in the labour market. This marks its lowest point since February 2013, when the UK labour market was still recovering from the global financial crisis.
With UK economic activity expected to rise in the coming months, further significant increases in the unemployment rate are unlikely, according to BDO. However, it said, the new government must act swiftly on areas such as reforming the apprenticeship levy and introducing Skills England to drive recovery.
Economic consultancy firm Cebr forecasts the unemployment rate to peak at 4.6% in Q3 2024.
The manufacturing optimism index rose marginally to 104.15 in June from 104.11 in May, marking its highest level since July 2022. A wave of new orders was behind the renewed optimism, despite the challenges of elevated input prices and tight financial conditions.
In contrast, the services optimism index fell slightly to 101.83 in June from 102.07 in May, indicating persistent high services inflation, which stood at 5.7% as of May amid elevated nominal wage growth.
Kaley Crossthwaite, partner at BDO, welcomed the end of months of political uncertainty, but added: “Businesses need support to tackle significant challenges with initiatives that will drive economic growth and ensure employees have the necessary skills to thrive. With a new government, there is an opportunity to focus on programmes that boost employment levels including making the apprenticeship levy more flexible to address workforce pressures.”
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