The UK economy is experiencing slower growth amid uncertainty over the upcoming budget, contributing to a cautious business climate.
- In September, the UK’s PMI composite output index decreased to 52.9 from 53.8 in August.
- Business activities are impacted by companies delaying investments and hiring due to fiscal uncertainties.
- Despite slowed growth, experts remain hopeful about a ‘soft landing’ for the economy.
- Current focus remains on inflation control and potential Bank of England interest rate adjustments.
The UK’s economic growth is showing signs of deceleration as businesses and investors grapple with uncertainties surrounding the upcoming budget. The Purchasing Managers’ Index (PMI) for September fell short of expectations, slipping to 52.9 from 53.8 in August, as reported by S&P Global. Though this figure remains above the 50-point mark, which separates growth from contraction, it highlights a slowdown in recovery pace. Such indicators underscore the ambient caution permeating the business landscape.
Businesses across sectors are postponing investment and hiring decisions, adopting a ‘wait and see’ approach as they await Chancellor Rachel Reeves’ budget announcement on October 30. Chris Williamson, chief economist at S&P Global Market Intelligence, pointed out that while business optimism has increased, the manufacturing sector, in particular, faces uncertainties. Williamson elaborated that the primary concern is the clarity on fiscal policies, especially those related to taxation.
Despite the overarching slowdown, there are optimistic forecasts for a ‘soft landing’ for the UK economy. Inflationary pressures seem to be easing, with costs rising at slower rates than previous months. Companies have also moderated their price increases to the slowest pace since February 2021. Such trends suggest that inflation control measures may be gaining traction, providing a buffer against more drastic economic downturns.
Alex Kerr of Capital Economics emphasized that while the PMI dip may appear concerning, it does not herald an impending recession. He forecasts that the Bank of England is likely to adjust interest rates further, following a recent reduction from 5.25% to 5%. These measures are anticipated to sustain economic balance as more comprehensive data are accounted for in upcoming PMI reports.
The UK’s economic outlook remains cautiously optimistic with strategies to mitigate inflationary risks and potential rate adjustments in place.
