Chief Business Economist at S&P Global Market Intelligence
UK private sector manufacturers report a sustained upturn in business activity during September, marking 11 months of continuous expansion, according to the latest S&P Global Flash UK PMI Composite Output Index.
But output growth slowdowns in both manufacturing and services meant that the overall speed of recovery moderated for the first time since June, the closely watched survey of 1,300 UK firms, found. The survey found evidence that some companies were pausing investment and recruitment until they see what the new Labour government’s first budget – due at the end of October – contains.
The headline seasonally adjusted index registered 52.9 in September, down from 53.8 in August, but still said to be comfortably above the 50.0 no-change value. Higher levels of business activity have been recorded in each month since November 2023 and the latest rate of expansion was broadly in line with the average over this period.
Manufacturing production increased at a slightly faster pace than services activity, though both sectors saw a slower upturn than in the previous month. Where higher levels of output were reported, survey respondents mostly commented on rising customer demand and improving domestic economic conditions. Meanwhile, fragile client confidence and ongoing inventory cutbacks were cited as headwinds to growth in September.
Survey respondents typically noted improving sales pipelines, alongside successful marketing and promotional initiatives. The technology services sub-sector was particularly upbeat about demand conditions. New export orders remained relatively subdued, with total overseas sales rising only marginally in September. Some service providers noted higher demand from US clients, but manufacturers frequently suggested that weak EU sales had weighed on export orders.
Service providers signalled a marginal increase in staffing numbers, while manufacturers indicated renewed job cuts. S&P says anecdotal evidence suggested that tight budgets, ongoing business uncertainty and rising wages had all been a factor weighing on recruitment in September. There was little sign of pressure on business capacity as backlogs of work decreased for the seventeenth successive month.
Despite weaker demand for manufacturing inputs, suppliers’ delivery times lengthened again and to the greatest extent since April. Business activity expectations for the year ahead remained upbeat in September and the degree of confidence edged higher since the previous survey. Optimism was mainly attributed to improvements in broader economic conditions, the impact of softer inflationary pressures on customer demand, and long-term investment plans.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“The September PMI data bring encouraging news, with robust economic growth being accompanied by a cooling of inflationary pressures. The data therefore hint at a ‘soft landing’ for the UK economy, whereby the fight against inflation is showing increasing signs of being won without higher interest rates having caused a downturn.
“A slight cooling of output growth across manufacturing and services in September should not be seen as too concerning, as the survey data are still consistent with the economy growing at a rate approaching 0.3% in the third quarter, which is in line with the Bank of England’s forecast.
“Business optimism has also risen, albeit with concerns about the impact of the Autumn Statement jangling nerves somewhat, notably in the manufacturing sector. Investment plans in particular are reported to have been put on ice pending clarity on the new government’s policies, especially towards taxation. Hiring likewise has been stifled by business uncertainty about the near-term economic outlook ahead of the ‘budget.”