Ritika Janiya
The UK economy seems a bit shaky at the moment, and the businesses do not want to know what happens next. A recently released report shows that growth in private sector activity has slowed down for the second month consecutively. Thereby, it is due to its impact on the services as well as on the manufacturing sector, and many companies are left uncertain about their subsequent action.
What is the Effect?
A survey by S&P Global, published in September, tells that most companies are adopting a “wait and see” approach before the fall budget. This will be the first budget since 2010 and comes from Labour. Businesses are folding their arms and investing in nothing as they sit and ponder about how the budget will affect them.
Chancellor Rachel Reeves is hoping to stir more investments in areas to boost her economy. However, uncertainty over the budget issues has kept companies out; instead, they put some projects on hold.
Business Concerns
The survey shows that most businesses are concerned about the budget itself. It was the biggest source of worry for private sector firms. Though orders from American clients slightly improved, overall sales to Europe were rather low. This is a worrisome development, more so for manufacturers who depend on the export business.
Independent of PwC, a separate report by the Confederation of British Industry (CBI) noted similar trouble on the part of producers. Their export order books face their worst level since December 2020 when early days of the COVID-19 pandemic coincided with the UK sealing its Brexit deal. As CBI pointed out in its report issued, things are “uniformly disappointing” that is to say they are not exactly rosy for many producers.
Mixed Bag
Yet such challenges aside, all hope is not lost. The S&P survey suggests that, on average, for the eleventh consecutive month, activity has been growing in the services and manufacturing sectors. This should mean that though at the moment the economy appears to be dragging, there is still hope for some growth in the future.
However, the overall index of private sector activity decreased from 53.8 in August to 52.9 this time around. Any reading above 50 indicates expansion; so the numbers need to be watched closely. Companies increased their prices at their slowest rate since February 2021. It is an indicator that maybe the inflation has just begun to ease up.
Economic Outlook
Chris Williamson, S&P Global Market Intelligence’s top economist, said that the slight slowdown in growth should not worry the economy too much. This shows that “the economy is still on track for growth” and this promises a growth rate to come about at roughly 0.3% in the third quarter of this year and is well within what the expectations of the Bank of England are.
Furthermore, business optimism improved, but the budget still remains a cause of nervousness for most companies. Investment strategies remain under the wait-and-see dilemma until businesses are actually given a clear understanding from the government regarding their tax policies.
Interaction with Europe
It is interesting, though, that of late, the UK economy has been performing slightly better than the eurozone. That is why the British pound rose to the two-year high against the euro at half a euro cent to €1.1967. Business activity, however, declined in Germany to the highest point since the previous summer, while the eurozone economy, marking some signs of contraction, was dragged down.
On the contrary, the HCOB flash eurozone PMI index dropped to 48.9, so below the 50-point mark that differentiates growth from shrinking. Hamburg Commercial Bank expects German economy to contract by 0.2% in the quarter ending September, and would thus push the country to recession as GDP declined 0.1% in the preceding quarter.
Review of the Future
With the Budget to be announced on October 30, businesses have something to look forward to with hope. Now many look forward to policies that are intended to boost confidence and encourage investment. And with good clarification and support from the government, this may help alleviate some of the uncertainty facing the UK economy at present.
Meanwhile, businesses have to deal with these issues in seeking the best ways they can expand as they watch their budgets and how they are affecting their futures.
