UK businesses are hopeful that September was the low point for the economy
New data from ratings agency S&P Global shows that private sector confidence is showing signs of recovery in the UK.
At 51.1, up from 50.1 in September, the flash PMI headline composite output index was the second-lowest seen over the past five months and hence signalled only a modest expansion of the economy at the start of the fourth quarter. The PMI is broadly consistent with GDP having stalled in September and growing at a 0.1% quarterly pace in October.
While service sector growth ticked higher in October, it was still the second-lowest growth rate seen over the past five months. More encouraging was a more pronounced uplift in service sector new business growth to the second-highest seen over the past 11 months, hinting at improving demand.
Within the service sector, recent growth has been led by IT and financial services, but the latter saw some fading of momentum in October. Consumer-oriented service providers meanwhile reported signs of improving activity and demand, and the downturn in the business services sector showed signs of moderating.
There was also better news from the manufacturing sector, where output rose for the first time in 12 months. However, some caution is warranted here, in that the upturn partly reflected the restart of manufacturing operations at Jaguar Land Rover, with a knock-on effect to its suppliers, after operations were halted in September due to a cyber attack.
Furthermore, a sustained drop in new orders placed at UK factories, extending the current period of decline to 13 months, suggests demand for goods remains a major drag on the sector, linked in part to a further steep fall in exports. October’s fall in goods exports was the largest for six months, and among the largest recorded since the pandemic.
Signs of recovery
Notably, October’s flash UK PMI survey brings hope that September was a low point for the economy from which business conditions are starting to improve.
Output has picked up, with a particularly welcome return to growth for manufacturing for the first time in a year accompanied by an upturn in demand for services among consumers.
Business confidence has also brightened slightly, job losses have moderated, and inflationary pressures are coming back to levels consistent with the Bank of England’s 2% target.
However, even with a helping hand from restarted production at Jaguar Land Rover, the overall pace of growth signalled by the PMI remains consistent with only sluggish GDP growth of around 0.1%.
And, while easing, jobs continue to be cut amid a backdrop of business confidence that remains subdued by historical standards. Goods exports also continue to fall at a worryingly steep rate, in part due to the global trade disruptions caused by US tariff policy.
