BDO has recorded a sharp improvement in UK business confidence during August, with optimism reaching its highest level since shortly before the 2024 Autumn Budget as services activity strengthened.
BDO’s Optimism Index rose to 94.22 in August from 89.96 in July, while its Output Index climbed to 98.37, the highest reading since January 2025. The Employment Index remained much weaker at 93.10, showing that improving activity has yet to produce a comparable recovery in hiring.
The increase marks a substantial change from July, when optimism had recovered only modestly from a five-year low. Manufacturing confidence was particularly weak at that point, while the employment measure remained close to its lowest level in 15 years.
BDO’s Business Trends framework combines major UK business surveys covering more than 4,000 respondents from companies employing around five million people. The indices track optimism, output, inflation, and employment, with readings above 95 generally associated with positive growth.
On that basis, the August Optimism Index remains just below BDO’s positive-growth threshold despite the strength of the monthly increase. Output has moved more decisively above it, while employment continues to lag both measures.
Services were the principal driver of the improvement. Travel and leisure benefited from seasonal demand, while broader services activity remained resilient despite inflationary pressure linked to international conflict and energy costs. Weak export demand continued to weigh on some services businesses.
Other indicators published over recent weeks have pointed in a similar direction. Lloyds Bank’s Business Barometer showed confidence strengthening in August, while the Institute of Directors recorded an improvement in economic confidence even though sentiment remained weak by historical standards.
August’s services PMI also stayed in expansionary territory. New business and confidence improved, while employment remained under pressure, reinforcing the distinction between growing activity and companies’ willingness to increase headcount.
That divergence has become an important feature of the current recovery. Businesses can increase output while limiting recruitment through productivity improvements, automation, restrained replacement hiring, and greater use of existing capacity. Higher wages, employment taxes, energy costs, and uncertainty over future policy can keep labour demand subdued even as orders improve.
The figures therefore provide a more nuanced picture than the confidence headline alone. An improving Optimism Index suggests expectations have strengthened materially, but the employment reading indicates that many companies are still protecting flexibility rather than committing to a larger permanent cost base.
The Autumn Budget is another source of uncertainty. Employers have spent much of the year adjusting to higher operating and employment costs while assessing the Government’s fiscal direction. Taxation, business rates, energy costs, and investment incentives will all influence whether stronger sentiment is converted into capital expenditure and recruitment.
Manufacturing remains more exposed than services to energy prices, international demand, tariffs, and supply disruption. The latest manufacturing PMI nevertheless showed continued expansion and stronger hiring, suggesting conditions are not uniformly weak across the industrial economy.
Services companies are more directly influenced by domestic demand, consumer spending, wage costs, and tax policy. A durable improvement in the overall economy therefore depends on gains being sustained across sectors rather than resting principally on seasonal consumer activity.
Employment remains one of the clearest tests of that durability. BDO’s measure has barely moved from recent lows, indicating that businesses have not yet translated stronger expectations into a broad increase in labour demand.
August consequently represents a material improvement in confidence and output, but not a complete normalisation of business conditions. The next readings will show whether the rebound survives the approach to the Budget and whether improving activity begins to produce a stronger response in hiring and investment.
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