New figures are expected to show that the economy returned to growth in August, but surveys suggest businesses are still taking a cautious approach ahead of the budget.
City economists expect figures published on Friday to confirm that the UK grew 0.2 per cent in August, having been stagnant for the two months prior.
The expansion is likely to be driven by the UK’s dominant services sector, particularly in consumer-facing sectors, which will offset continued problems in manufacturing.
Construction activity may see a small improvement, largely thanks to August’s dry weather.
Analysts at Capital Economics said the figures would put the UK on a “more normal growth rate” rather than being “on the precipice of another recession”.
Despite the return to growth, business surveys paint a slightly more subdued picture, with firms wary of making decisions before the budget later in October.
Chancellor Rachel Reeves is expected to announce a series of tax hikes as she seeks to address the parlous state of the public finances.
Although the government has ruled out raising corporation tax, many businesses are still worried about a possible hike to capital gains tax as well as changes to the treatment of employers’ pension contributions.
Goldman Sachs expects Reeves to hike taxes by “at least” £15-20bn, which some economists have warned may damage the UK’s growth prospects longer term.
The details of Labour’s new workers’ rights package, another major concern among the business community, have also yet to be finalised.
Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), said uncertainty over the workers’ rights bill was “slowing employer confidence right now”.
The REC’s jobs report, produced alongside KPMG, showed that hiring activity had slowed in September due partly to political uncertainty.
Jon Holt, chief executive of KPMG UK, said the slowdown in hiring was “to be expected” as businesses await “clarity on future taxation, business and economic policy”.
A separate survey from BDO also painted a bleak picture of the labour market, with the employment index dropping to its weakest level since January 2013.
BDO’s survey also suggested that output growth eased in September across both the manufacturing and services sector, largely as a result of supply chain disruptions. Nevertheless, business confidence actually improved last month, according to the firm.
Kaley Crossthwaite, a partner at BDO, warned that “optimism may prove fragile” if businesses did not receive the “necessary support and clarity” in the budget.