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UK businesses’ hiring intentions have fallen sharply to levels last seen in 2014, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

The latest report reveals that the Employment Index, which tracks firms’ intentions to hire in the coming six months, has dropped from 104.8 to 102.2. While still above the long term trend, this is the biggest monthly drop in the growth of employment since the aftermath of the financial crisis.

Firms appear to be increasingly shunning new hires as the National Living Wage makes employment more expensive. Some firms may be holding off until uncertainty about future membership of the EU is resolved.

However, BDO’s Output Index - which reflects companies’ experience of orders for the coming three months – is still at a healthy 100.6. While BDO’s Optimism sub index for the services sector – which predicts growth six months ahead – remains particularly buoyant at 101.8. The continuing growth in the face of employment slowing suggests that the UK could finally be seeing an uptick in its productivity.

Peter Hemington, partner at BDO LLP, said: “Our productivity ultimately determines how much we earn and the UK's performance in this area has been verging on the disastrous since the recession. Figures earlier this year showed that output per hour here is now 21% below the average of our G7 partner.

“Our figures this month on hiring intentions suggest that UK businesses are starting to look harder at whether recruiting new staff is always the right answer. While this trend will slow the growth of the workforce, it could signal the start of a move toward a higher investment, higher productivity economy. In the long run, this would help us generate higher living standards and more interesting jobs for UK workers."