The UK economy was hit by a “litany of worrying news” in the three months to September with thousands of jobs lost ahead of Chancellor Rachel Reeves’ second autumn Budget. The latest ‘flash’ PMI from S&P Global showed business activity expectations for the year ahead slumped to a three-month low in September as firms braced for a painful Budget.
Chief business economist at S&P, Chris Williamson said: “Around 50,000 job losses were signalled by the PMI in the three months to September”. He said the latest figures “brought a litany of worrying news including weakening growth, slumping overseas trade, worsening business confidence and further steep job losses.
He added: “Alarm bells should be ringing that the economy is faltering.” The UK’s manufacturing output sank to a 6-month low at 45.4 falling from 49.3 in August – the latest decline since March. In the all-important service sector higher levels of business and consumer spending were “constrained” by “lacklustre UK economic conditions.”
However, the headline index held firm at 51, staying above the 50 threshold which indicates a level of – even though modest – growth. The wafer-thin distance from contraction comes as the Treasury faces pressure to avoid further burdening business in the autumn Budget.
S&P Global said respondents to the PMI had “widely” commented on weak client confidence alongside “heightened political and economic uncertainty.” The PMI data landed just moments before the Organisation of Economic Co-operation and Development (OECD) released its latest assessment of the UK economy in a report closely watched by the Treasury and policy makers. The OECD warned that higher taxes and the sting from US tariffs are set to restrain UK growth, now forecast to limp along at just one per cent next year.
The Paris-based group said that core inflation in the UK, which measures the changes in prices of goods and services except for food and energy, is expected to be 3.7 per cent in the UK, a full percentage point above the G20 average and significantly higher than the likes of the US and Spain.
Executive director of the Institute of Economic Affairs, Tom Clougherty said: “The OECD’s forecast growth for the UK will barely sustain our ageing population; never mind delivering an upgrade in living standards. Worse still, the forecast of the highest inflation in the G7 will quickly eat away at any minor benefits we do feel.”
Meanwhile, Chancellor Reeves has been issued with a fresh warning on the damaging effects of raising taxes at this year’s Budget, with a leading forecaster claiming the prospect of a fiscal crisis is “real.”
Capital Economics has warned that a higher tax burden on households could drastically lower spending levels across the country. A decision to target people’s incomes would shorten GDP growth by 0.2 percentage points, according to projections made by the consultancy.
The firm’s top economists believe the government will have to raise some £28bn in extra revenue later this year as they suggested that backbench Labour MPs’ reluctance to “stomach spending cuts” had put the UK on a course towards a possible crisis.
While Capital Economics does not forecast an economic collapse in the upcoming years, it warned a number of “triggers” could yet send the UK economy into a meltdown.
The consultancy said a break from Reeves’ fiscal rules, the replacement of the Chancellor or a deterioration in official economic data over the coming year could set a crisis in motion, with bond traders becoming less likely to view the UK in a positive light.
The election of Reform UK party with its as-yet “unfunded commitments,” could also trigger a fiscal crisis, analysts said.
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