Autumn Budget could ‘exacerbate’ manufacturing challenges
Fears that the UK manufacturing industry’s recovery could be “short-lived” have jumped as firms brace for a painful Autumn Budget.
The latest S&P Global’s manufacturing Purchasing Managers’ Index (PMI) edged up to 49.7 in October, marking a 12-month high for the sector.
But this remained stubbornly below the all-important 50.0 threshold, which indicates whether a sector is growing.
Growth primarily stemmed from a stronger performance in the intermediate goods industry, buoyed by Jaguar Land Rover’s return to normal operations following its cyberattack disruption.
Rob Dobson, director at S&P Global Market Intelligence, said: “The October PMI survey shows UK manufacturing production rising for the first time in a year, which is a positive in itself.
“However, there are real concerns that the bounce could prove short-lived.”
Employment shrank for the twelfth consecutive month in October, with labour costs cited as the primary factor.
Higher minimum wages and the hike to employers’ national insurance contributions (NICs) were named as the top factors driving job losses.
Dobson added: “There are also concerns the forthcoming Budget will exacerbate the lingering challenges created by last year’s Budget, especially in relation the impact of national minimum wage and employer NIC on costs, demand and production.”
Tax hikes expected in the Autumn Budget
Chancellor Rachel Reeves is reportedly facing a fiscal black hole of nearly £30bn and businesses are bracing for further taxes on 26th November.
More than half of businesses warned they would cut staff or stop hiring if taxes are hiked at this year’s Autumn Budget, according to data from the Institute of Chartered Accountants in England and Wales (ICAEW).
Dobson said manufacturers were stuck in a “holding pattern” until domestic policy becomes clearer and “geopolitical backdrops exhibit greater clarity”.
Business optimism managed to scrape an eight-month high, although it remained below its long-term average. Over half of panellists in the PMI said their output would likely be higher in a year’s time, igniting hopes of economic recovery.
A flash PMI from S&P earlier this year indicated the UK economy had a flash of “hope” in October after manufacturing roared back to life, ending a year-long slump.
Business activity jumped to a two-month high at 51.1, up from 50.1 in September.