UK economy flatlines in November as Labour growth push fails
The UK economy flatlined in November, researchers have suggested, as pre-Budget nerves have hit growth across the private sector.
S&P Global’s initial estimate for its purchasing managers’ index (PMI) has shown the UK economy just inching up, with firms pausing orders and investment plans before Chancellor Rachel Reeves announces sweeping tax hikes and possible spending cuts.
The composite reading for services and manufacturing was just 50.5, marginally above the benchmark figure for neutral output. The data would be consistent with no change in GDP over the month, analysts said.
The UK private sector suffered from lower growth due to a sharp deceleration in services activity compared to October.
The sector recorded a decline in new work over the month for the first time since July. The marginal upturn in services was the weakest on its seven-month growth run, according to S&P Global.
The data also showed a sharper reduction in headcount in November than in the previous month as the UK economy continues to suffer from a crumbling jobs market.
UK economy pre-Budget jitters
Chris Williamson, chief business economist at S&P Global, said the data reflected “disappointing news” for the country as it braces for a difficult Budget, with a possible contraction to be possible,
“Some of this malaise has been blamed on paused spending decisions ahead of the Autumn Budget, but there’s a real chance this pause may turn into a downturn.
“The drop in confidence about the year ahead reflects growing concerns
that business conditions will remain tough in the coming months, largely linked to speculation that further demand-dampening measures will be introduced in the Budget.”
In light of sluggish economic growth and lower inflation – highlighted by a drop in service charge inflation and the slowest rate of output charges in the private sector in nearly five years – policymakers at the Bank of England may be swayed to lower borrowing costs for firms.
They may also view lower business confidence cited by S&P Global’s research as a catalyst for further rate cuts to come.
“A weak growth outlook combined with easing price pressures are increasing the likelihood of a pre-Christmas rate cut,” said Matt Swannell, chief economic adviser to the EY ITEM Club.
“At its November meeting, a finely balanced Monetary Policy Committee (MPC) swayed towards keeping interest rates on hold. However, signs of easing inflationary pressures, a loosening labour market and a subdued growth outlook all point towards a rate cut in December.”