The pace of economic growth in the UK slowed in September, as concerns about the government’s upcoming budget weighed on business activity, according to a preliminary estimate from the widely tracked PMI (Purchasing Managers’ Index).
The UK’s “flash” PMI composite output index, which gauges business activity across both the service and manufacturing sectors, dropped to 52.9 in September from 53.8 in August. This is below the projected consensus of 53.5. Although still above the 50-point threshold that signifies continued growth, the figure represents a slowdown in the recovery rate.
The Purchase Managers’ Index (PMI), gathered by S&P Global from a study of 1,300 companies, emphasized that businesses are progressively opting for a “wait and see” strategy ahead of Chancellor Rachel Reeves’ budget declaration on October 30. Some firms have halted investment and hiring choices until financial policies are made clear.
Chris Williamson, chief economist at S&P Global Market Intelligence, noted that while business optimism had risen, uncertainty about the budget was “jangling nerves,” particularly in the manufacturing sector. “Investment plans have been put on hold, and hiring has slowed as businesses await clarity on government policies, especially taxation,” he said.
Growth in both the service and manufacturing sectors was slower than in August, as fragile customer confidence and reduced inventory levels affected new business. Nevertheless, Williamson was hopeful, noting the data indicated a “soft landing” for the UK economy and easing inflation pressures without causing a recession.
Despite businesses experiencing increased costs in September, breaking the 45-month low recorded in August, the pace of price hikes by companies was the most sluggish since February 2021. This suggests that inflationary pressures might be manageable.
Although there’s a slowdown, Alex Kerr of Capital Economics doesn’t see the PMI dip as a sign of an impending downturn. He anticipates the Bank of England will make another base rate cut this year, after the August reduction from 5.25% to 5%, and predicts more cuts in 2024.
These initial estimates might be revised in the final PMI report, which is based on more comprehensive data.
UK economic growth slows amid uncertainty over upcoming budget (bmmagazine.co.uk)
