The latest monthly Business Trends report from BDO, the business advisory and accountancy firm, reveals optimism in the manufacturing sector is at its highest level in nine months.
BDO’s Optimism Index rose to 91.96 in July, up from 91.58 in June, following nine consecutive months of subdued business sentiment since the Autumn Budget. This was driven by a strong rebound in manufacturing optimism, which rose sharply from 93.74 to 96.50.
Recent trade agreements could be a driver of this uptick for manufacturing optimism. However, headwinds including weak GDP growth, high labour and energy costs and ongoing uncertainty surrounding future global trade policy continue to weigh on confidence. In contrast to manufacturing, sentiment in the services sector remained broadly flat.
BDO’s Output Index also edged down to 97.79 in July from 98.05 in June, signalling sustained yet muted growth below historic levels. The services sector, which makes up the majority of the UK’s economic output, lost the positive momentum it had picked up at the start of the summer amid persistent cost pressures and weak overseas demand, with output in the services sector falling from 98.32 in June to 97.98 in July.
Although new trade deals are showing promise, this has yet to unlock meaningful investments for businesses. Margin pressures remain acute and companies are still holding back amid uncertainty.
Against this backdrop, the BDO Employment Index fell to 94.11 in July, matching its lowest reading since October 2012. This near 13-year low reflects a marked cooling in the labour market, with declining payrolled employee numbers and falling vacancy rates contributing to subdued hiring sentiment.
While there are survey-based signs of modest improvement in near-term recruitment plans for manufacturers, the structural pressures remain acute across all sectors. Higher employer National Insurance Contributions and April’s rise in the National Living Wage have tightened labour budgets, and businesses are preparing for further cost exposure ahead of the Autumn Statement.
With economic analysis behind the Business Trends report forecasting an unemployment rate peak at 4.9% later this year, there is limited scope for a meaningful recovery in employment conditions. BDO expects the Employment Index to remain at historically low levels for the rest of 2025.
Scott Knight, Head of Growth at BDO, said: “There are signs of recovery, but they are fragile. Manufacturers may be breathing a little easier in the wake of trade deals, but their output is yet to catch up. Business leaders are stuck in limbo, waiting for clearer signals from the government that further investment will be worth the gamble.”
