The economic landscape in the UK is witnessing a slowdown as uncertainty around the coming budget impacts business activity.
- The PMI index has fallen from 53.8 in August to 52.9 in September, marking a decline in economic growth while remaining above the growth threshold.
- Businesses are adopting a ‘wait and see’ strategy, affecting investment and hiring decisions as they await budget clarity.
- Despite rising business optimism, the budget concerns are heightening anxieties, especially in the manufacturing sector.
- Inflationary pressures appear to be easing, with the slowest rate of price increase since February 2021.
The UK’s economic growth has shown signs of slowing in September, according to the PMI index, which measures business activity in both services and manufacturing sectors. The index dipped from 53.8 in August to 52.9, signalling a deceleration but still indicating growth above the 50-point mark.
Businesses across the UK are increasingly adopting a ‘wait and see’ approach in anticipation of Chancellor Rachel Reeves’ budget announcement due on 30 October. This strategy has led to postponed investment and recruitment decisions as companies seek clarity on upcoming fiscal policies.
Chris Williamson, chief economist at S&P Global Market Intelligence, indicated that while business optimism is on the rise, there are growing ‘jangling nerves’ regarding the budget, especially within the manufacturing sector. Investment has been paused, and there is a slowdown in hiring as businesses await clearer governmental directives, particularly on taxation.
The pace of growth in both the services and manufacturing sectors has tempered compared to August. Businesses are seeing fragile confidence among clients and a reduction in inventory levels, further contributing to the slowed growth.
Despite the observed economic slowdown, Williamson remains optimistic, suggesting a soft landing for the UK economy as inflation pressures seem to be easing. The rate at which companies increased prices was the slowest since early 2021, indicating controlled inflationary pressures.
Alex Kerr from Capital Economics believes that the dip in the PMI does not signal an impending economic downturn. He predicts the Bank of England may execute one more rate cut this year, following the recent reduction from 5.25% to 5%. More cuts are anticipated in 2024 to manage economic stability.
The UK’s economic outlook remains cautiously optimistic amidst budget-related uncertainties, with controlled inflationary pressures providing some reassurance.
