Business confidence climbs to a near two-year high

UK business activity reached its highest level since January 2025 in August, according to the latest report from accountancy and advisory firm BDO.

BDO’s Output Index rose to 98.37 as resilient services activity continued to support growth despite ongoing geopolitical and inflationary pressures. Business optimism also improved markedly in August to 94.22, marking the highest figure since just before the 2024 Autumn Budget, Labour’s first since it returned to Government.

The Services Optimism Index rose particularly strongly, to 94.48 from 89.72 in July, as industries responded positively to the Government’s business-friendly messaging ahead of the Autumn Budget. However, the durability of this improvement will depend on whether the Government’s rhetoric is matched by meaningful measures in October’s Autumn Budget.

BDO’s Output Index remained in expansionary territory, rising to 98.37 in August, up from 98.22 in July. Growth continued to be driven by the services sector, with travel and leisure benefiting from seasonal demand. Export demand for services remained weak, tempering what was otherwise a positive month for the sector.

The Manufacturing Output Index also remained in expansionary territory at 95.58, although it edged lower as the temporary boost from precautionary stockpiling continued to fade and export demand softened.

Meanwhile, the BDO Employment Index, a combination of hiring intentions, headcount and labour demand, remained broadly unchanged at 93.10, hovering just above its recent 15-year low. While hiring remains subdued, the slowing pace of job losses points to a labour market that is stabilising rather than deteriorating further.

The Inflation Index rose to 102.18 from 101.45 in July, as the cost of doing business came under renewed pressure following remerging tensions in the Middle East. Both input costs and consumer price pressures are continuing to rise, with the impact of higher oil prices and the increase in the Ofgem price cap feeding through to business and household bills.

Scott Knight, Head of Growth at BDO, said “With output on the up, it’s no wonder businesses are starting to feel a little less gloomy. However, all eyes are on Burnham and the Autumn Budget. Practical measures to reduce costs and unlock investment are essential if the Government is to turn sentiment into meaningful growth.”