Services sector brings economic boost but businesses face uncertain outlook

A bounce in services sector activity pushed UK business output to its highest level in a year, according to the latest Business Trends report from accountancy and advisory firm BDO.

BDO’s Output Index, which measures activity across key sectors in the UK economy, increased to 98.80 in February, up from 97.67 the previous month. This increase marked three consecutive months of recovery following improvements in sales pipelines and new customer enquiries for services companies.

Domestically, business rates relief was also a likely factor in February’s service sector bounce, boosting key parts of the hospitality sector including pubs and music venues.

However, businesses face a difficult external outlook amid geopolitical uncertainties and challenging macro conditions. The evolving situation in the Middle East and developments around tariffs have the potential to weigh on companies.

BDO’s Employment Index – which reflects trends in hiring intentions, headcount and labour demand to provide a broad snapshot of UK labour market conditions rather than an absolute headcount – held at 93.30 in February, continuing a sustained run of multi-year lows. The BDO Employment index is now at its weakest reading in nearly 15 years (since March 2011).

While the pace of decline in the Employment Index has stabilised since the start of the year, there are limited signs of meaningful recovery in the near term.

Despite February’s services bounce, persistent weakness in the labour market is adding to cautiousness amongst UK businesses, which is likely to remain until labour market conditions improve.

Scott Knight, Head of Growth at BDO, said “Global disruption puts the spotlight firmly on the economy. While momentum is building in pockets of the economy, real growth is impossible without targeted action to fix the floundering labour market.”
Overview of the BDO indices

	February 2026 (figures in this report)	January 2026	December 2025	November 2025	October 2025
BDO Optimism Index	93.45	90.04	90.01	93.45	93.30
BDO Output Index	98.80	97.67	96.54	97.28	96.65
BDO Inflation Index	98.51	99.73	98.80	99.07	99.28
BDO Employment Index	93.30	93.30	93.32	93.53	93.95