Uncertainty surrounding the Budget knocked economic activity in October, according to a closely watched business survey, as firms delayed decisions in the face of possible tax changes.
S&P’s ‘flash’ purchasing managers’ index (PMI) came in at 51.7 this month, down from 52.6 in September and below expectations.
While the PMI remained above the 50 no-change mark, it was the slowest rate of expansion since November last year and equates to just a 0.1 per cent quarterly increase in GDP.
“Business activity growth has slumped to its lowest for nearly a year in October as gloomy government rhetoric and uncertainty ahead of the Budget has dampened business confidence and spending,” Chris Williamson, chief business economist at S&P Global Market Intelligence said.
Chancellor Rachel Reeves is reportedly looking to raise £40bn in the Budget, weighted heavily towards tax rises.
The Chancellor is likely to force employers to pay national insurance on pension contributions and may hike capital gains tax too. Other measures, such as closing inheritance tax loopholes and extending the freeze on income tax thresholds, are also under consideration.
Survey respondents noted that Budget uncertainty had “delayed decision-making” while companies reduced headcount for the first time this year.
While firms in the service sector saw solid growth in new business intakes, manufacturing firms saw an outright decline.
The survey showed that business confidence fell for third successive month, taking it down to its lowest level since November 2023.
With the Budget only a week away, Williamson said the Budget would play “a major role in steering the direction of the economy in the months ahead”.
More to follow