(Bloomberg) -- UK businesses are putting off investments in anticipation of Labour’s budget next month, adding to concerns that the new government’s gloomy economic rhetoric is already hampering growth.
S&P Global said its composite PMI index decreased to 52.9, down marginally from 53.8 in August. Economists had expected a reading of 53.5, with levels above 50 indicating growth.
The survey showed private-sector companies are growing more wary of tax rises and spending cuts that Prime Minister Keir Starmer’s government is expected to announce in the budget on Oct. 30. Some clients were adopting a “wait-and-see” approach to decision-making.
“Investment plans in particular are reported to have been put on ice, pending clarity on the new government’s policies, especially towards taxation,” said Chris Williamson, chief business economist at S&P Global. “Hiring likewise has been stifled by business uncertainty about the near-term economic outlook ahead of the budget.”
That echoes a survey by GfK released on Friday, which showed consumer confidence falling this month at its fastest pace in two-in-a-half years, due in part to concern about Labour’s “painful” fiscal decisions ahead. The indications suggest that Starmer’s warnings about his economic inheritance risk undercutting his push for faster economic growth.
Chancellor Rachel Reeves is trying to inject more optimism into that narrative, vowing her budget won’t return to austerity. Speaking ahead of her speech to the Labour conference in Liverpool on Monday, she promised government spending will increase in real terms over the current parliamentary term.
“I can see the prize on offer, if we make the right choices now,” Reeves is due to say in her address at noon, according to pre-briefed remarks from Labour. “Growth is the challenge and investment is the solution.”
It’s not all doom and gloom in the S&P Global figures. An 11th-straight month of expansion was marked by “robust” new business activity and strengthening order books across the service economy, S&P said. That was accompanied by signs that inflation was cooling, as an index of prices charged fell to a 42-month low.
“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,” Williamson said.
Prices charged by private-sector companies rose at their slowest pace since February 2021, S&P said. Many firms reported that “intense competitive pressures” were acting as a brake on their pricing power, the survey found. The pound stayed weaker below $1.33.
What Bloomberg Economics Says...
“The UK flash composite PMI survey for September adds to evidence that Britain’s activity is cooling after a speedy recovery in the first half of the year. Signs that price pressures continued to moderate, especially in services, will be welcomed at the Bank of England. This supports our view that the majority of the Monetary Policy Committee will be in favor of cutting interest rates again in November.”
Niraj Shah, economist. Click to read the REACT on the Terminal
The Bank of England last week signaled a cautious approach to rate cuts, holding borrowing costs unchanged after deciding in August to make its first cut since the pandemic.
--With assistance from Mark Evans and Joel Rinneby.
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