Growth in services battling against wider challenges facing businesses

Business Output declines as inflation rises despite the services sector showing an uptick
BDO’s Optimism Index drops to lowest level since January 2021, when businesses were battling COVID-19 lockdowns
Unemployment continues to rise as businesses prepare for increased labour costs, dragging Employment Index to levels not seen since after the Global Financial Crisis

The latest Business Trends report from BDO, the business advisory and accountancy firm, reveals Business Output fell for the second consecutive month, indicating a persistent slowdown in the pace of growth in overall activity across the UK economy.

Despite the decline recorded in overall output, the Services Output Index rose from 98.05 to 98.29 in February. This reading suggests the services sector remains resilient, with unseasonably warm weather in February and a continued shift in consumer spending from goods to services since the Covid-19 pandemic as two potential drivers.

BDO’s Optimism Index also declined to 91.40 in February, recording its fifth consecutive drop as a result of rising employment costs. This is the lowest reading since January 2021, a time when the effects of COVID-19 lockdown were still contributing to business uncertainty.

According to economic consultancy, Cebr, the UK GDP growth is set to rise to 1.1% in 2025, up from 0.9% in 2024, helped by the gradual easing of monetary policy. However, high interest rates and ongoing inflationary pressures are likely to keep growth below pre-pandemic levels.

Employment Index continues to fall to levels last seen after the Global Financial Crisis

BDO’s Employment Index dipped further, reaching 94.30 from 94.72, towards levels last seen in the aftermath of the Global Financial Crisis. Persistent inflation, weak business sentiment and subdued economic activity continue to weigh on the UK labour market.

The UK labour market has shown further signs of loosening, with a declining number of payrolled employees, falling job vacancies and a rise in the number of people claiming unemployment benefits, according to ONS.

This downward trend is likely to persist throughout 2025, especially over the next few months as businesses navigate rising labour costs set to take effect from April.

Kaley Crossthwaite, Partner at BDO, said: “Business growth is happening, but it is in a fragile state. Cutting interest rates to 4.5% is a step in the right direction, but we know these cuts can take over 18 months to fully impact the economy. Businesses will need continued support in the meantime to address workplace challenges and fully reach their growth potential.”

ENDS

Overview of the BDO indices

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.

BDO’s Business Trends is a ‘poll of polls’ and comprises multiple surveys covering 4,000 respondents. Further information on outputs is available on request, but please note the Labour Force Survey is not one of them.

	February 2025 (Figures for this report)	January 2025	December 2024	November 2024
BDO Optimism Index	91.40	92.20	93.41	93.49
BDO Output Index	97.63	97.66	98.38	97.52
BDO Inflation Index	97.94	97.08	96.86	96.50
BDO Employment Index	94.30	94.72	95.14	95.56

Note to editors

BDO LLP operates in 18 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.

It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to mid-sized, entrepreneurially-spirited, high-growth businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.

BDO LLP is the UK member firm of the BDO international network.

BDO’s global network The BDO global network provides business advisory services in 166 countries and territories, with more than 119,000 people working out of 1,800 offices worldwide. It has revenues of US$15bn.

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