A continued recovery for the service sector has boosted UK business confidence as output levels start to inch closer to pre-inflation highs.
According to the Output Index of accountancy and business advisory firm, BDO, output in January rose for the third month in a row to 99.42, the highest level seen since July 2022.
The Services-Sub Index also reached 100.05 – the highest since August 2022 – suggesting signs of improvement in the overall economic climate.
As a result, UK businesses have begun to “cautiously” regain their confidence, Kaley Crossthwaite, partner at BDO, said, with the service sector “spearheading” the momentum.
“With output expected to continue rising, recession easing and businesses hopeful of further interest rates cuts – businesses have started the year with a sense of cautious optimism,” she added.
Despite the positive outlook, Crosswhite said: “We can’t be complacent.”
Employment has fallen for the seventh time, hitting another 10-year low, according to the BDO Employment Index, suggesting a continued decline in hiring intentions.
“While certain pressures are beginning to ease, demand hasn’t quite regained its pre-pandemic vigour and these businesses will continue to need targeted support in the months ahead,” Crosswhite added.
The optimism comes as firms expect falling inflation and interest rate cuts to give the economy a much-needed boost.
The Lloyds Business Barometer recently highlighted a 44 per cent rise in overall business confidence in January, which now places it at a two-year high.
Every sector of the economy except retail saw confidence grow, according to the barometer. Services increased 15 points to 45 per cent; manufacturing increased to 49 per cent; and construction rose eight points to 45 per cent.