Hiring intentions and business confidence saw declines across both the services and manufacturing sectors in July, with economic growth set to slow, according to a report from business advisory BDO.

BDO’s Employment Index fell for the first time in six months as businesses reduced vacancies whilst battling higher interest rates, weak global demand, and ongoing supply difficulties. The number of vacancies fell by 85,000 in Q2, and pay growth slowed.

Sentiment was particularly negative amongst manufacturers, which have been exposed to elevated borrowing costs. And whilst services optimism also declined by 1.10 point to 99.57 in July, the sub-index remains above the 95-point mark, indicating net-optimism across the sector despite the weaker reading. Further declines in both optimism and employment are expected with threats of a recession looming for Q4 and early 2024.

BDO’s Output Index revealed contrasting stories for the manufacturing and services sectors. Manufacturing output dropped sharply to 77.26 – its weakest reading since May 2020, when the sector faced the first national Covid-19 lockdown. A 5.22-point pick up in services output meanwhile drove an overall improvement of the headline index to 96.15 in July. Output now remains just above the 95-point of contraction, indicating marginal growth.

July saw BDO’s Inflation Index fall by 2.72-points to stand at 100.96, its lowest reading in over two years. This decline is expected to mirror slows in consumer inflation driven by a drop in energy prices following Ofgem’s lower price cap. A fall was also observed in input price inflation reaching 91.01 reflecting the dropping prices in global commodity markets.

Kaley Crossthwaite, partner at BDO LLP, said: “A more pessimistic outlook from businesses and consequent loosening of the labour market are the first indicators of the slow in economic growth expected towards the end of the year.

“With yet another hike in interest rates from the Bank of England last week, this downturn is only set to worsen in what should be a golden quarter for many, if more isn’t done to support businesses. To reverse these trends, government needs to work more closely with industry to ensure firms of all sizes have tailored support in order to weather the storm, invest and grow.”

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