Business activity across the UK slowed sharply in September as mounting anxiety over the government’s delayed autumn budget led companies and households to postpone investment and spending decisions.
The S&P Global composite purchasing managers’ index (PMI) — a closely watched measure of private-sector health — fell to 50.1 from 53.5 in August, marking its weakest reading since early spring.
While still marginally above the 50-point threshold separating growth from contraction, the latest data underline how political and fiscal uncertainty has dampened confidence across the economy.
The services sector PMI, which dominates UK output, dropped from 54.2 in August to 50.8 in September — a sharp loss of momentum from its 16-month high. The manufacturing index slipped further into contraction, at 46.2, down from 47.0 the previous month.
“September’s acceleration in output growth now looks like a flash in the pan,” said Tim Moore, economics director at S&P Global. “Many survey respondents suggested that corporate clients had deferred spending decisions until after the autumn budget, while households were also hesitant about major purchases.”
Chancellor Rachel Reeves is due to deliver her second annual budget on 26 November, amid growing expectations that she will announce tens of billions in tax increases to rebuild fiscal headroom.
Economists said speculation over the scale and scope of the tax measures had already chilled confidence.
“The economy is doing little more than muddling through in the second half of the year,” said Thomas Pugh, economist at RSM UK. “The risk is that intense speculation about potential tax rises weighs heavily on consumer confidence and business sentiment, leading to another bout of stagnation.”
Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “The PMI’s sharp drop in September shows the chilling impact on business sentiment that speculation about tax hikes in the November budget can have.”
Weak pipeline of new work points to soft finish to the year
Matt Swannell, chief economic adviser at the EY Item Club, said the survey data showed “activity growth ground to a halt in September” and warned that “the pipeline of incoming work looks soft, with weak demand and continued uncertainty seeing some spending decisions being postponed.”
However, Swannell cautioned that PMI surveys often “reflect sentiment rather than real output changes”, meaning the downturn may look worse on paper than in reality.
Martin Beck, chief economist at WPI Economics, agreed that media coverage of “surging government borrowing costs, looming tax rises and even talk of an IMF bailout” had likely fuelled pessimism. “The surveys have a track record of painting an unduly gloomy picture when uncertainty is high,” he said.
Easing inflation could open door for rate cuts
Despite the slowdown, analysts said there was one silver lining: inflation in the services sector fell to its lowest level since June, easing pressure on the Bank of England to maintain high interest rates.
Wood said the softer price data could “encourage some members of the Monetary Policy Committee to consider lowering borrowing costs sooner than previously expected.”
Economists warn that unless the budget provides clear signals on fiscal stability and business investment incentives, the UK risks slipping back into stagnation in the final quarter of the year.
With firms and consumers sitting on their hands, and sentiment bruised by policy uncertainty, the next two months could prove pivotal for the new government’s credibility on growth.
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Budget jitters slow UK business growth as firms delay spending