UK business recovery is losing momentum, with output growth in the services sector significantly slowing in September, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.
While September witnessed a fifth consecutive month of output growth since levels plummeted to record lows in April, it marked a marginal rise of just 1.01 points last month. This compares to gains of 6.7 points recorded in July and 11.16 points in June. BDO’s Output Index – which provides the most comprehensive snapshot of business output by weighting macroeconomic data from the UK’s main business surveys – now stands at 77.95, well below the long-term average of 100.
This decline in momentum was driven by the services sector, as various government measures designed to prevent the spread of coronavirus, such as the ‘rule of six’ and the 10pm curfew, hit businesses. Many firms also reined in plans for returning to the office in a further blow to industry.
BDO’s Services Output Index – which includes hospitality, retail, and financial and professional services – rose by just 0.96 points to 76.32 in September, a sharp deceleration on the significant increases seen during the summer. This slowdown in the UK’s economic recovery from the pandemic was also driven by the renewed spread of infections in recent weeks, as consumers become more hesitant to visit restaurants and return to the high street.
Confidence in the services sector also dampened in line with the pedestrian pace of output growth. BDO’s Services Optimism Index rose marginally by 0.96 points to 76.32 in September. This compares to a 6.81-point increase when lockdown restrictions first lifted in July.
Elsewhere in the report, BDO’s Employment Index, which has remained resilient throughout the pandemic, slipped 0.23 points last month to 109.46. While the labour market has been protected by the Chancellor’s Coronavirus Job Retention Scheme, this gentle decrease comes as the government announced plans to taper off its support by replacing the furlough scheme with a new Job Support Scheme, which will place a greater burden on employers from November.
Commenting on the results, Ed Dwan, Partner and head of BDO LLP in the North West, said: “There remains significant uncertainty over the pace and path of the UK’s economic recovery, but hopes of a ‘V’ shaped recovery now seem remote. The nature and duration of further measures introduced to suppress infection levels in our region and beyond will undoubtedly have a major influence on our economic trajectory, and a nationwide “circuit breaker” could inflict further pain in the coming weeks.
“The government must perform a delicate balancing act to help mitigate the spread of the ‘second wave’ of the virus, while protecting the small and mid-sized businesses which are the UK’s economic engine.”
