The confidence of British companies has risen to its highest level in nearly two years, and the output of British firms is growing despite the looming October Budget.

According to advisory firm BDO, optimism among British companies has reached its highest level since just before the Autumn Budget 2024. The firm's business optimism index jumped to 94.22 in August, driven by a strong rebound in confidence in the services sector, which dominates the UK economy and accounts for the bulk of national output.

BDO's output index rose to 98.37 last month, the highest level since January 2025. The services sector was also the main driver of output, as resilient activity supported growth despite inflation fears caused by the war in Iran.

The UK's travel and leisure industries benefited from strong seasonal demand, while weak export demand for services weighed on the headline output index.

The firm's employment index remained broadly unchanged at 93.10, having edged up from a recent 15-year low. Hiring across the UK economy remains weak, BDO found, but the pace of job losses is slowing, suggesting that the labour market is stabilising after recent lows.

'All eyes on' Healey's Budget

Analysts at the advisory firm said the readings are good news for the government ahead of next month's Budget, but warned that they could be undone if Chancellor John Healey fails to address the rising costs facing British firms. Business groups have repeatedly warned that measures announced in recent Budgets, including higher employer National Insurance contributions and rises in the National Living Wage, have increased firms' staffing costs — a backdrop against which this Budget will be judged.

The British Chambers of Commerce, a leading City of London body, has urged the government to tackle the 'cost of doing business', having found that the average firm's overheads have risen by 70 per cent over the past decade.

A group of City grandees, including Lord Stuart Rose and John Caudwell, have backed a campaign calling on the government to halt the "creep of taxes" weighing on British firms.

Hospitality and retail businesses have urged Healey to ease the cost of employment and reform the business rates system, which, in their view, is pushing high street businesses to the wall.

Scott Knight, BDO's head of growth, said: "With output on the up, it's no wonder businesses are starting to feel a little less gloomy. However, all eyes are on Burnham and the Autumn Budget.

"Practical measures to reduce costs and unlock investment are essential if the Government is to turn sentiment into meaningful growth."