Threat of recession looming as firms grapple with ‘inflationary headwinds’, UK advisory group warns

Report says threat of recession looming amid fall in employment, business optimism, and output

Rates have risen from 0.1% in December 2021 to 5.25% today (Jordan Pettitt/PA) (PA Wire)

The threat of a recession is looming amid a fall in employment, business optimism and output, a new report warned.

Advisory group BDO said its research suggested that business confidence, output, and hiring intentions continued to fall in September as firms grappled with “ongoing inflationary headwinds”.

Companies were struggling to maintain staffing numbers and deal with higher borrowing costs, wage growth and weaker customer demand, said the report.

This comes as a recent report by BDO found that September was the 14th consecutive month that sales growth in the retail sector fell below inflation levels.

Retailers recorded total like-for-like sales growth of just 0.2 per cent last month, with this low level comparing to an already very weak base in September 2022.

The retail fashion sector performed particularly poorly, with sales falling -3.4 per cent.

Both reports came following the closure of 400 Wilko stores around the country after the discount hardware and furnishings chain tumbled into administration in August due to weak consumer spending and large debts to suppliers.

Kaley Crossthwaite of  BDO said: “An even more pessimistic outlook from businesses, declining output and the lowest reading on our Employment Index in nine years are mounting indicators of the slowdown in economic activity predicted over the winter months.

“With the threat of recession on the horizon, businesses are understandably feeling the pressure.

“More needs to be done to offer businesses support to weather the storm and drive their growth through the challenging months ahead.”

Sophie Michael, head of Retail and Wholesale at BDO LLP, added: “Despite people returning from summer holidays and school terms commencing, September was a very poor month for the retail sector. Sales growth has flat-lined in categories like fashion and homewares, and such minimal growth in a high-inflation environment means that sales volumes of discretionary goods have shrunk. 

“The context of these results, comparing back to September 2022, is really important. We saw very weak sales growth in that period amid the economic uncertainty prompted by the government’s ‘mini budget’. Performing so poorly against such a weak base will be really worrying for retailers.”