British businesses reported a slowdown in growth this month as some firms feared higher taxes, according to a survey that also showed waning price pressures, potentially encouraging the Bank of England to consider cutting interest rates again.
However, economists broadly saw the data as pointing to a return to a more sustainable growth pace after a post-recession bounce earlier in the year — in contrast to a much weaker performance in the eurozone this month.
The preliminary estimate of the UK S&P Global Composite Purchasing Managers’ Index fell to 52.9 from 53.8, below all forecasts in a poll of economists but still well above the 50 level that separates growth from contraction.
Data firm S&P Global said the figures were consistent with Britain’s economy expanding at a quarterly rate of 0.3 per cent, about half the pace of earlier this year, but still stronger than for much of the past two years.
Sterling strengthened against the US dollar on the data, reversing some of the losses it sustained after the release of eurozone data earlier on Monday which pointed to a contraction in the economy.
“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,” said Alex Kerr, UK economist at Capital Economics.
Input costs faced by companies rose at a faster rate in September but companies increased the prices they charge by the least since February 2021, and they also turned cheerier about the outlook, helped by the relative stability in the economy.
The Bank of England last week said it would wait for clearer signals on inflation before cutting interest rates further after a first reduction in August.
A Reuters poll of economists published earlier this month suggested the BoE will cut borrowing costs just once more this year, in November.
Tax worries
S&P Global said the biggest concern voiced by firms related to uncertainty about the Oct. 30 budget when new finance minister Rachel Reeves will publish her first tax and spending plans.
“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,” S&P economist Chris Williamson said.
Britain’s longest-running consumer sentiment survey showed an unexpected fall on Friday due to worries about higher taxes and a cut to pensioners’ benefits.
Reeves has warned that taxes are likely to have to rise by more than her Labour Party said would be needed during this year’s election campaign, due to what she claimed was a 22 billion-pound ($29 billion) hole in the public finances left by the Conservatives.
The PMI for the services sector, which dominates Britain’s economy, fell to 52.8 from 53.7 in August, again below the poll consensus of 53.5.
Growth weakened a bit more sharply among factories with the manufacturing PMI falling by a full point to 51.5.