Fears for UK economic outlook as business optimism hits brakes as cost-of-living crisis bites

Business optimism has fallen to its lowest level in more than a year, as firms grapple with mounting economic headwinds, painting a “worrying” picture for the economy, according to new data from accountancy and business advisory firm BDO LLP.

The drop in optimism was driven by the services sector, which has 'felt the full force of consumers tightening their spending on non-essentials', says BDO (file image). Picture: Hollie Adams/AFP via Getty Images.

The latest BDO optimism index fell 4.82 points to 101.93 in May, on the back of the worsening cost-of-living crisis having been compounded by skyrocketing inflation and disruptions to global supply chains.

The latest figure marked the index’s second consecutive month of decline, pushing it to its lowest point since April 2021 when coronavirus restrictions were being relaxed, added the professional services firm, which recently signed a ten-year lease at 2 Atlantic Square in Glasgow city centre and has an office in Edinburgh.

The drop was mainly driven by the services sector, BDO also noted, with that industry’s optimism index down by 5.35 points to 100.95 – just above the 100 level that denotes long-term average growth.

Additionally, the BDO output index fell by 1.86 points in May to 100.53, its lowest reading in 14 months, but the employment index gave cause for optimism, rising 0.89 points to 113.89, outstripping its pre-pandemic level with its highest reading since March 2019. However, BDO also said employment is set to weaken in the medium term.

Kaley Crossthwaite, partner at BDO LLP, said: “The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy. Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”