The pace of recovery of the UK economy from last year’s recession slowed in September as caution grows ahead of Rachel Reeves’s Autumn Budget, according to a key business survey.
The closely watched S&P Global Flash United Kingdom PMI index stood at 52.9 in September, down from 53.8 in August, and the 11th consecutive month of growth but below City expectations of 53.5. A reading of 50 indicates no growth.
Manufacturing production increased at a slightly faster pace than services activity, though both sectors saw a slower upturn than in the previous month. However, respondents in both the sectors said there were some reports of clients adopting a wait-and-see approach to decision-making ahead of the Budget on 30 September.
Chris Williamson, chief business economist at S&P Global Market Intelligence said: “The September PMI data bring encouraging news, with robust economic growth being accompanied by a cooling of inflationary pressures. The data therefore hint at a ‘soft landing’ for the UK economy, whereby the fight against inflation is showing increasing signs of being won without higher interest rates having caused a downturn.
“A slight cooling of output growth across manufacturing and services in September should not be seen as too concerning, as the survey data are still consistent with the economy growing at a rate approaching 0.3% in the third quarter, which is in line with the Bank of England’s forecast.
“Business optimism has also risen, albeit with concerns about the impact of the Autumn Statement jangling nerves somewhat, notably in the manufacturing sector. 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’.
“In the meantime, services inflation, stubbornly elevated rates of which have been the bugbear of the Bank of England, cooled in September to the lowest since February 2021 to help bring the Bank of England’s 2% inflation target closer into view. The survey data therefore support the view that there is scope for interest rates to fall further in the closing months of 2024.”
Alex Kerr, UK Economist at forecaster Capital Economics said: “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.”
