Business output slows despite record levels of employment

Economy & Politics | Employment & Skills | Reports

Martin Gill

Business output growth is slowing despite record high levels of employment, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

The latest report shows that business output growth is continuing to slow down, and has reached its lowest reading since December 2012.

BDO’s Output Index, which measures UK business output, fell from 98.58 in May to 97.29 in June. It is now way below the long-term growth trend of 100 and is creeping closer to the point of contraction, below 95.0.

Despite the stalling output growth, Scottish and UK businesses are more confident about their performance over the next six months.

BDO’s Optimism Index, which shows how firms expect output to develop in the coming six months, marginally increased to 101.85, from 101.74 the previous month, and remains above the long-term trend. Considering the increasingly complicating economic environment, both at home and aboard, the findings suggest firms could be more resilient to the unprecedented levels of political and economic uncertainty which are dampening current performance levels.

Confidence in the future is filtering through into firms’ current ambitions to hire more staff. BDO’s Employment Index – which indicates the hiring intentions of British businesses – has risen to its highest value on record.

This tallies with the UK unemployment rate falling to its lowest level since 1975, which now sits at 4.2%. The findings indicate that firms are attempting to bolster output by turning to the labour market but are still struggling to improve productivity.

Commenting on the BDO Business Trends Report’s findings, Martin Gill, Lead Partner of BDO LLP in Scotland, said: “The record level of employment is a real achievement for the economy during this turbulent period. However, the UK’s perennial productivity problem is hurting firms more than ever as output growth continues to slow.

“The UK government’s concerted effort to raise annual productivity growth to 3% is a step in the right direction but more needs to be done to reach this target. Increasing the annual investment allowance would encourage firms to invest more in infrastructure, technology and training and help solve the UK’s productivity puzzle.”

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