UK businesses shrug off Budget tax fears in push for growth
UK businesses enjoyed a boost in activity in October due to improved demand for good, a leading survey has indicated, in signs that the momentum in growth was growing ahead of the Budget.
S&P Global’s purchasing managers’ index (PMI) has offered the Chancellor and the Bank of England some positive relief ahead of crucial policy decisions in the next month.
The latest PMI showed the composite index rose to its second highest level since September last year at 52.2, slightly above the 50-figure benchmark for no change in output.
The figure was higher than analysts predicted and a previous ‘flash’ estimate for output levels in the UK economy.
The services PMI also jumped to 52.3 in October.
Researchers at S&P Global said stronger order books and more product launches helped to boost business levels across the UK economy while consumer demand had remained “resilient”.
“The latest survey offered some positive signals for the UK service economy, with output growth stronger than the earlier ‘flash’ estimate for October, and therefore confirming a notable improvement from September’s five-month low,” said S&P Global’s economics director Tim Moore.
“A number of firms noted resilient customer demand, especially in domestic markets, despite elevated business uncertainty and delayed decision-making on major spending ahead of the Budget.”
Budget fears ‘brushed off’
Economists have suggested that PMI readings were surprising given the looming uncertainty around the Budget, with the Chancellor all but confirming she will raise taxes by billions of pounds.
“Remarkably, businesses are brushing off the spectacle of months of tax hike rumours and kite-flying from the Treasury, likely as firms are comforted that they will be spared the brunt of the pain this year,” said Rob Wood, chief UK economist at Pantheon Macroeconomics.
“The large upward revision to the PMI suggests firms responding late to the survey reported much improved business confidence, suggesting that speculation of income tax hikes reduced the risks of business-focused levies.”
The PMI release also showed input price inflation fell to an 11-month low, suggesting price pressures are easing slightly, though analysts said they remained “historically strong”.
The decline in employment numbers across the services sector was the slowest across the last 12 months.
EY ITEM Club chief economic adviser Matt Swannell said new data on the UK’s prospects for curbing inflation would not sway Bank of England policymakers, who are expected to vote for interest rates to be held in a tight decision.
Swannell said: “Business cost pressures are starting to ease a little as companies have adjusted to April’s rise in employers’ NICs.
“Nonetheless, this will gradually feed through to prices and we continue to think that inflation, particularly in the more labour-intensive services sector, will be sticky.
“However, this is unlikely to move the needle for tomorrow’s MPC decision, with the Bank of England expected to leave Bank Rate unchanged as they remain more wary of cutting interest rates too quickly rather than too slowly.”