• BDO Employment Index rises significantly in July as lifting of restrictions leads to jobs revival
  • Strong inflation could derail the recovery as BDO Inflation Index remains at second highest level in four years

    The relaxation of further lockdown rules in July caused the UK’s job market to surge, according to the latest Business Trends report from accountancy and business advisory firm BDO LLP.

    The BDO Employment Index jumped 1.57 points from 106.05 in June to 107.62 in July, the highest level seen so far this year. This has largely been driven by the hospitality industry, prompted by the widespread re-opening of pubs, bars and restaurants. HMRC’s payroll data for June found the largest month-on-month increase since the series began in 2014, with a progress towards normality driving employment gains across the economy.

    Businesses continue to report labour shortages, in part caused by the pandemic and Brexit, suggesting there is a strong job market for job seekers. Despite this surge, the outlook for overall employment levels remains uncertain, with the forthcoming withdrawal of the furlough scheme in September likely bringing some instability.

    Elsewhere in the report, the BDO Inflation Index remained largely stagnant in July at 103.70, a slight fall of 0.13 points from last month. This still represents the second highest reading since June 2017. The record high levels of inflation are being driven by broader pressure on global supply chains as well as more specific problems importing goods and materials due to Brexit. Manufacturers have borne the brunt of this – 72% reported an increase in input costs in July, according to figures IHS Markit. Another factor driving input inflation is rising wages, caused by the strong labour market, meaning employers are paying more to attract and retain talent.

    The high level of inflation is clearly having an impact on businesses’ outlook. Despite the relaxation of lockdown in July, BDO’s Optimism Index fell by 0.53 points from June to July, reaching 111.92 points. While this fall does suggest some businesses are fearful about their recovery, business confidence as a whole remains relatively high – July’s reading represents the second highest score since the series began in 2005.

    Commenting on the results, Phil Hall, Partner at BDO LLP in East Anglia, said: “The surge in employment is a timely boost and shows how quickly the relaxation of restrictions has impacted the economy. It now appears that one of the biggest problems faced by employers will be filling roles as both the pandemic and Brexit give rise to staff shortages.

    “This could well lead to a long-term trend of rising wages, which is already a contributory factor in the record high inflation index figure. Combined with a material shortage caused by pandemic disruption, and ongoing disruption at the border because of Brexit, businesses are not yet out of the woods.”