British business activity expanded at its slowest pace since April as companies and consumers held back on big spending ahead of the November budget expected to bring tax increases. The services PMI fell to 50.8 in September, from 54.2 in August, while the composite PMI was revised down to 50.1, just above zero growth.
S&P Global said political and economic uncertainty was once again the main factor weighing on the services sector. Many companies postponed spending decisions until after the budget, while households also held back on major purchases.
Chancellor of the Exchequer Rachel Reeves is expected to unveil new fiscal measures on November 26, with billions of pounds in tax increases or spending cuts expected. Last year, companies already bore the brunt of the increase in mandatory social security contributions.
Pantheon Macroeconomics expects the PMI reading to show third-quarter GDP growth of around 0%-0.2%, lower than the Bank of England’s forecast of 0.4%, although the official figure could be higher after revisions. Some analysts attribute the PMI decline to sentiment.
S&P also found that Britain's services sector has shed jobs for the 12th straight month, while cost pressures are easing. This could support a dovish view in the BoE, although policymakers remain cautious as inflation is expected to rebound to almost double its target.
