British businesses have stopped hiring and gone into “survival mode”, with economic output falling to a five-year low in June as the war in Iran, weak consumer spending and persistent cost increases combine to squeeze firms everywhere.
The warning comes from consultant BDO, whose economic output index fell to 91.53 in June from 94.80 last month. That is its weakest reading since February 2021, when the UK was still in the grip of a Covid-19 lockdown.
For small business owners, the most sobering discovery is in the works. BDO research showed that hiring appetite is close to a 15-year low, even as firms accept the biggest increase in operating costs in more than three years.
The price of energy, raw materials and other essential goods have risen sharply since the successful closing of the Strait of Hormuz, which followed the first US-Israeli strikes on Iran at the end of February. Four months on, the decline has become more entrenched, as manufacturing and services both suffered a poor June.
Scott Knight, head of business growth at BDO, said: “Business confidence has been at a record low for 20 months in a row as businesses are stuck in the doldrums.
That next prime minister is Andy Burnham, who succeeds Sir Keir Starmer on July 20. Data suggests reviving the stagnant economy will have to sit atop his tray from day one.
Official figures on Thursday from the Office for National Statistics are expected to show gross domestic product grew by 0.1 percent in May, as it contracted by the same degree in April.
The geopolitical picture offers little comfort. Last week the US and Iran traded strikes and President Trump declared the fragile ceasefire between the two to be “over”, a move that has already sent fuel prices up sharply. Brent crude briefly rose above $80 a barrel before returning to $75 by the end of the week.
Turmoil results in currency costs. The yield on the UK’s 10-year government bond has risen by around 0.10 percent to 4.87 percent over the past five days, with the higher yields translating directly into the fees paid by companies that finance loans, overdrafts and commercial mortgages.
BDO predicted that business confidence is likely to continue to falter due to growing tensions in the country.
Analysts are divided on whether the Bank of England will raise the base rate from 3.75 percent this year, as markets have already been eyeing a price hike since the oil shock.
Weakness in the labor market is seen as a major reason for the central bank to remain cautious, as it left rates unchanged last month. The latest ONS figures showed job vacancies fell to a five-year low in the three months to May, while private sector pay, excluding bonuses, grew by 2.9 per cent, the smallest rise in more than five years.
For SME owners weighing hiring plans, lending decisions or energy contracts, the next focal point on the calendar is July 30, when the Bank’s monetary policy committee meets again.
