What’s going on here?
UK business growth slowed to an 11-month low in October as firms awaited Labour’s first budget, causing the year’s first dip in hiring. The S&P Global Flash Composite PMI slipped to 51.7 from 52.6 in September, still hovering above the contraction line.
What does this mean?
The UK’s economic momentum is faltering with businesses feeling cautious ahead of Labour’s initial budget. The services sector saw its activity index fall to an 11-month low, while manufacturing hit a six-month low, mainly due to declining international orders. With growth predicted at a sluggish 0.1% quarterly rate, companies are affected by geopolitical uncertainties and looming domestic policy decisions. Prime Minister Keir Starmer’s government aims to spark economic growth for increased public spending, but waning business confidence could stifle investment. Finance Minister Rachel Reeves’ upcoming budget needs to tackle these challenges while addressing a significant fiscal deficit.
Why should I care?
For markets: Confidence takes a hit as the budget looms.
Businesses are tightening their belts, with employment contracting for the first time since last December, largely due to a steep decline in the service sector. The reduction in input cost pressures might prompt the Bank of England to consider cutting interest rates if economic conditions worsen, potentially affecting market dynamics and investor strategies.
The bigger picture: Global and domestic headwinds challenge growth.
Beyond the UK’s borders, Middle East tensions, the Ukraine conflict, and the upcoming US election add layers of uncertainty to the economic landscape. Domestically, higher-than-expected government borrowing across the year’s first half may force tough decisions in Labour’s fiscal policy, putting pressure on Rachel Reeves to craft a budget that stabilizes growth and fiscal responsibility.
