Business output continues its resurgence, but rate of recovery begins to slow

Business output across the UK increased for a third consecutive month in July as the services sector benefited from the continued lifting of lockdown restrictions, but the pace of recovery has started to wane, according to figures from the latest BDO Business Trends report.  

BDO’s Output Index, which provides the most comprehensive snapshot of output in the manufacturing and services sectors by weighting macroeconomic data from the UK’s main business surveys, rose by 6.70 points to 73.20 in July. This compares to a more significant rise of 11.16 points in June, suggesting the rate of economic recovery is beginning to slow. The Index also remains considerably short of the 95-point level which represents an annual expansion in output. 

BDO’s Services Output Index - which encompasses a range of industries including retail, hospitality, and transport - roseby 6.81 points to 71.54 points in July. This followed new government guidance at the start of the month allowing pubs, restaurants, and cafes to reopen, leading consumers back to the high street. 

Meanwhile, BDO’s Manufacturing Output Index recorded a more muted rise of 5.81 points in July, a marked downturn in the rate of recovery, which increased at almost twice the pace (10.92 points) in June. The manufacturing sector’s reliance on international exports means it has been adversely affected by the rising numbers of coronavirus cases seen across the world. 

Elsewhere in the report, the BDO Employment Index fell for the fifth consecutive month, sliding 0.66 points to its lowest level since November 2016. However, this relatively steady and small rate of decline suggests that government support has been broadly successful in retaining jobs so far. 

Richard Rose, partner and head of BDO LLP in the Midlands said: “The latest data suggests we might be approaching a plateau in our economic recovery. While the reopening of the hospitality sector has provided a much-needed uplift, the ongoing capacity restraints caused by social distancing, as well as pressures on UK manufacturers imposed by weakened overseas demand, means this growth is likely to continue to slow.   

“Support from the Coronavirus Job Retention Scheme has successfully insulated millions of workers from the worst impact of the economic downturn. But with this government support beginning to taper, it remains to be seen how resilient the jobs market can continue to be.”