The relaxation of lockdown rules in July sparked a surge of hiring among UK firms, but staff shortages caused by the pandemic and Brexit could still undermine the recovery, the professional services group BDO reported on Monday. BDO’s latest business trends report found that the jobs market strengthened last month, as hospitality venues such as restaurants and bars were allowed to operate without Covid-related capacity limits. But many firms reported labour shortages, partly due to the pandemic – with workers being told to self-isolate by the NHS Covid app – and Brexit, BDO said. This created a scramble for workers, pushing up wages and leaving bosses fretting about rising costs. BDO’s employment index rose by 1.57 points, from 106.05 in June to 107.62 in July, showing the strongest pickup in hiring so far this year. Business optimism dipped back from the record high recorded in June, while BDO’s inflation index – which tracks rising prices – was close to June’s four-year high. Pressure on global supply chains, and problems importing goods and materials due to the UK’s exit from the EU, both pushed up costs, BDO reported, along with rising wages as employers paid more to attract and retain talent. Some companies have recently introduced signing-on bonuses of up to £10,000 to attract job applications. Last week, the Bank of England predicted that unemployment had peaked, with a tight labour market leaving some employers struggling to hire staff. The Bank also forecast that inflation would hit a 10-year high of 4% by the end of the year. “The surge in employment is a timely boost and shows how quickly the relaxation of restrictions has impacted the economy,” said Kaley Crossthwaite, a partner at BDO LLP. “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.” A separate survey from the accountancy firm Azets found that two-thirds of UK small businesses felt positive about the UK’s economic outlook over the next 12 months, with more than half of firms expecting to expand their workforces. But the SME barometer also found a regional split, with 71% of London and south-east small firms feeling positive about the UK’s economic outlook, in comparison with 60% in Scotland and 59% in the north-east, north-west and Yorkshire and Humberside. Many firms, especially outside London and the south-east, cited Brexit as a threat – along with the economy, Covid-19 and competition. “After a year of deep crisis and upheaval, with the vaccination programme accelerating across Europe and lockdown restrictions beginning to ease, the prospect of an economic recovery feels within our grasp. At the same time, plenty of uncertainty remains,” said Chris Horne, the group CEO of Azets.