Bloomberg reported that the UK private sector went from modest growth to stagnation after the October budget announcement, as Purchasing Managers’ Index (PMI) data showed a sudden decline that cast a shadow over the British economy.
Standard & Poor’s Global data indicated a decline in the Composite Purchasing Managers’ Index from 51.8 points last October to 49.9 points this November, which is its lowest level in more than a year, according to the agency.
This number is lower than economists’ expectations of 51.7 points, indicating the first economic recession in some time. “The November index points to the economy declining at a quarterly rate of 0.1%,” Chris Williamson, chief economist at Standard & Poor’s Market Intelligence, told Bloomberg. “But the loss of confidence suggests worse outcomes to come, including additional job losses, unless sentiment improves.” “.
Direct effect of increased taxes
Recently, British Treasury Secretary Rachel Reeves’s budget, which included a £40 billion ($50 billion) increase in taxes, was harshly criticized, as companies bore the brunt of these increases, and companies’ operational costs also increased due to the rise in the minimum wage.
The report indicated that companies showed pessimistic expectations for economic activity next year, which is the most negative since late 2022.
The services sector, which represents the main engine of the British economy, witnessed a sharp slowdown, as the Purchasing Managers’ Index fell from 52 to 50 points, its lowest level in 13 months. Meanwhile, manufacturing output contracted at the fastest pace in 9 months.
The report also indicated that growth in new business was the weakest since December 2023, indicating widespread caution among companies after the budget, while some companies reported that the clarity of the political scene after the US elections contributed to strengthening demand slightly.
British government bonds rose as expectations intensified for the Bank of England to cut interest rates by 3 quarters of a percentage point by the end of 2025. While the British pound fell by 0.8% to $1.2494, but recorded gains against the euro after worse-than-expected purchasing managers’ data in the euro zone.
Challenges facing the new government
This economic decline puts additional pressure on Keir Starmer’s Labor government, which made reviving British economic growth one of its main priorities after winning the elections last July.
Recent tax policies were considered to have increased business anxiety rather than reassured them. “Businesses have given a clear signal of disapproval to the policies announced in the Budget, particularly the planned increase in employers’ National Insurance contributions,” Williamson said.
It remains to be seen whether the government will succeed in addressing this economic slowdown and reassuring the private sector amid mounting concerns about rising costs and weak demand.
