A key survey has cast a warning over the UK economy’s growth prospects as Rachel Reeves is just weeks away from presenting her autumn budget.
The recently unveiled ‘flash’ purchasing managers’ index (PMI) dipped to 52.9 from September’s reading of 53.8, sitting comfortably beneath the anticipated figures. Notably, it marked the lowest PMI score in two months.
Still, remaining above the pivotal 50 no-change threshold, the economy continues its expansion streak for an eleventh successive month.
According to the survey, slower growth was recorded within both services and manufacturing industries; however, both sectors are still expanding.
“Where higher levels of output were reported, survey respondents mostly commented on rising customer demand and improving domestic economic conditions. Meanwhile, fragile client confidence and ongoing inventory cutbacks were cited as headwinds to growth in September,” noted the report, as reported by City AM.
Despite these signs of deceleration, Chris Williamson, chief business economist at S&P Global Market Intelligence, encapsulated the findings as “should not be seen as too concerning”.
He further articulated that the survey aligns with predictions of GDP growing at a quarterly pace of 0.3 per cent, which correlates with the Bank of England’s projections from August.
The economic assessment also highlighted another strong month for new business, predominantly propelled by the service sectors increasing orders.
While business optimism persists due to the progressively brighter economic forecast, Williamson hinted that nervousness regarding the imminent budget remains palpable.
“Investment plans in particular are reported to have been put on ice pending clarity on the new government’s policies, especially towards taxation. Hiring likewise has been stifled by business uncertainty about the near-term economic outlook ahead of the ‘budget’,” he remarked.
Clients are also adopting a ‘wait-and-see’ stance regarding pivotal decisions before the fiscal announcement.
Most analysts agree that the survey points to a gradual deceleration in economic growth throughout the latter half of the year, following the UK’s unexpectedly robust performance at the start.
“The fall in September’s composite flash PMI is not a sign that the economy is on the cusp of another downturn, but instead is further evidence that real GDP growth has slowed towards a more normal rate in Q3 after the burst of growth in the first half of the year,” commented Alex Kerr, a UK economist at Capital Economics.
The survey further revealed signs of easing inflationary pressures, with the rate of prices charged inflation dropping to a 42-month low, primarily due to lessened pressures in the services sector, which has been a focal point for policymakers concerned with interest rates.
A number of respondents from the survey indicated that severe competitive forces were limiting their ability to raise prices.
Nevertheless, there was a marginal uptick in input price inflation, attributed to increased shipping costs and rising wages. In the manufacturing domain, the inflation rate for purchase prices hit its peak since January 2023.
The UK’s most recent survey was published shortly after PMIs for the German economy revealed a quickening downturn, with businesses slashing jobs at the fastest pace in over 15 years, excluding the pandemic period.
“The downturn in the manufacturing sector has deepened again, evaporating any hope for an early recovery,” stated Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
