Business confidence has experienced a decline in the past month due to concerns about the slowing UK economy, causing companies to rethink their hiring plans, according to a survey of over 4,000 firms.
Various factors have contributed to the prevailing pessimism, including higher interest rates and weak global demand, impacting both the services and manufacturing sectors.
The latest Business Trends report from accounting firm BDO revealed that employers’ hiring intentions have dropped for the first time in six months.
Manufacturing output has also suffered, reaching its lowest point since the early days of the UK Covid-19 lockdown in May 2020, as ongoing supply difficulties continue to take a toll.
Challenges in China’s recovery and a sluggish growth forecast for the eurozone have added to the difficulties faced by UK exporters, who missed out on much of the post-Covid-19 trade boom.
Economists predict a global slowdown in the second half of the year due to higher borrowing costs imposed by central banks like the Bank of England, the US Federal Reserve, and the European Central Bank.
The report, based on a poll of polls from leading business and manufacturing pulse checks, underscores the economic headwinds. The Bank of England recently raised interest rates to their highest level in 15 years, hinting at more to come to control inflation.
As a response to the increased borrowing costs, businesses have reduced hiring, leading to a decline of 85,000 job vacancies and slower wage growth. The report indicates that businesses have become more pessimistic about the future, particularly among manufacturers exposed to higher borrowing costs.
BDO’s findings suggest that the manufacturing sector is likely to contract further, while services show marginal growth before facing a potential recession at the turn of the year.
Kaley Crossthwaite, a partner at BDO, highlights the need for government support to reverse these trends and ensure businesses of all sizes have tailored assistance to weather the economic challenges and invest in growth.
Despite the gloomy outlook, there is a small silver lining as input price inflation has dropped due to falls in global commodity markets, as shown by BDO’s inflation index, which reached its lowest reading in more than two years.
The Bank of England mentioned a decline in the cost of raw materials and imported goods, although these reductions have yet to significantly impact the consumer prices index, which remains relatively high compared to other leading industrialised economies.
UK consumer inflation decreased to 7.9% in June from 8.7% the previous month, while average wage rises stood at 7.7% based on the latest labor market data.
The Bank anticipates a slight expansion in the economy over the next three years, but total growth is expected to barely exceed 1%.