Cost pressures are slowly improving

Business sentiment has ticked up on the back of an improving outlook for inflation, energy prices and supply chains.

The latest business trends survey from BDO, the professional services group, reported a rise in business output and employment last month, continuing a run of largely optimistic surveys from companies and consumers.

The BDO data is based on a “poll of polls”, analysing business surveys for an overall picture of economic trends. It summarises responses from more than 4,000 businesses in all sectors.

Its inflation index marked its lowest score since March 2022, but still high by historical standards as the cost of living continues to bite households and costs rise for businesses.

BDO said that pressures in companies’ supply chains had eased and wholesale energy prices have fallen, reducing some of these pressures.

However, businesses are not out of the woods. At the beginning of this month, government support with energy bills was sharply reduced.

There were also a series of changes to the tax regime, some of which will add pressure on some companies.

“It’s encouraging to see business optimism leading to renewed hiring intentions once more as businesses see input price and supply chain pressures ease slightly,” said Kaley Crossthwaite, a partner at BDO.

“Improvements in the output and inflation indices will only lead to a better outlook, as they work to drive growth and leave signs of a downturn in the past.

However, with the less generous Energy Bills Discount Scheme now in place and expectations of a recession remaining, the economy is likely to face further headwinds despite recent resilience. Businesses need as much certainty and support as possible to continue weathering the persistent challenges ahead.”

The UK economy has performed better than expected with most analysts now expecting it to avoid a recession this year.