By Daniel Hunter

BDO’s Employment Index, which measures businesses’ hiring intentions over the next two quarters, fell to a 28-month low of 90.7 in September, according to the latest Business Trends report from accountants and business advisers BDO LLP.

However, business optimism showed a rebound this month, continuing the zigzag pattern of ups and downs in confidence of the last four years. This reflects British businesses’ uncertain approach, with confidence ebbing and flowing as they grapple with a flat economy.

Falling business employment intentions indicate that the overall outlook for the UK economy continues to be challenging. The weakening Employment Index reflects recently published official figures, with unemployment rising to 8.1% and job vacancies falling back in August.

However, although conditions for job seekers are unlikely to improve before the end of the year, the UK labour market has been a bright spot in the gloom and this month’s BDO figures suggest no more than a mild downturn in hiring intentions.

Despite the rebound in UK business confidence this month, business conditions remain tough and both the Output and Optimism Indices remain below the crucial 95.0 mark indicating growth. But BDO’s Optimism Index, which predicts business performance two quarters ahead, improved 3.4 points to 92.5.

BDO’s Output Index - which predicts short-run turnover expectations — also increased in September, with a 0.4 point upturn to 91.2. These improvements suggest that the economy is likely to remain flat over the next few months, rather than contracting significantly.

“With tough business conditions becoming further ingrained, there is of course no quick fix to the UK economy’s ails," Peter Hemington, Partner, BDO LLP, commented.

"However, despite the current slight downturn, we welcome the continued surprising strength of the UK labour market. We would encourage the Government to take advantage of next week’s Conservative Party Conference to champion an innovative and flexible approach to strengthening the UK labour market, a key driver for economic recovery.

“Funding for vocational and training courses is vital, but the Government would also be wise to study measures being taken in countries like Germany and Austria where a policy of temporary shorter working times for full-time jobs, with reduced wages subsidised by the Government, has helped to reduce unemployment. Of the four countries with the lowest unemployment rates in Europe, three have adopted similar schemes, and two of those economies - Germany and Austria - are amongst the strongest in Europe.”

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