Budget uncertainty is dragging down the economy

Although the report shows an overall optimistic outlook for the UK economy, concerns about the upcoming budget are highlighted in the survey. Due to concerns about the upcoming tax measures, consumer confidence has been hit and businesses seem to be concerned about it as well. Both the manufacturing and service industries have reported that customers have adopted a "wait-and-see" attitude before the autumn budget is released. The biggest concern for private enterprises in the UK is the uncertainty of fiscal policy before the October budget is released. Given that the fundamentals of the UK economy do not warrant such pessimism, we still hope that the blow to consumer and business confidence will be short-lived.

Firstly, two independent business surveys indicate that the Labour Party will release its first budget since 2010, and budget uncertainty is putting pressure on the UK economy. Data company S&P Global stated that private sector activity growth in the UK slowed down for the second consecutive month in September, affecting the service and manufacturing industries. Some company reports indicate that despite Chancellor of the Exchequer Rachel Reeves' desire to encourage business investment to promote economic growth, clients still adopt a "wait-and-see attitude" towards decision-making before the autumn budget is released, which is affecting investment plans.

Secondly, the data indicates that the Labour Party emphasizes the necessity of implementing strict budgets in response to the poor situation inherited from the previous Conservative government, which puts pressure on the short-term prospects of many businesses. A survey by Standard&Poor's found that budget is by far the most concerning issue for private businesses in the UK. Export orders remain relatively sluggish, with only a slight increase in total overseas sales in September. Some service providers have noticed an increase in demand from American customers, but manufacturers often say that weak EU sales are putting pressure on export orders. Another survey conducted by the Confederation of British Industry on manufacturers found that the number of export orders in the three months up to September was at the lowest level since December 2020, the first year of the outbreak of COVID-19, which was just before the signing of the Brexit Agreement.

On the other hand, the Confederation of British Industry described it as disappointing in its Industry Trends report, which showed a deterioration in both manufacturers' total orders and export orders in September. 44% of manufacturers reported that their export orders this month were below normal levels, compared to a reading of -22% in August. CBI Chief Economist stated that the survey shows that the UK economic recovery in the first half of 2024 remains fragile, with uneven progress across different industries, and businesses becoming increasingly cautious before the budget is announced at the end of next month. However, despite concerns about increased tax revenue and slower economic growth in the budget, a S&P survey shows that service and manufacturing activities have improved for the 11th consecutive month, and businesses have stated that their expectations for new orders in the coming year are for growth.

Overall, the initial value of the UK PMI composite output index decreased from 53.8 in August to 52.9. Numbers above 50 indicate growth, and inflation is expected to ease after companies slow down price increases this month. The average price increase charged by private enterprises is the lowest level since February 2021.

Business optimism has also increased, although concerns about budget impacts are somewhat unsettling, especially in the manufacturing industry. The investment plan has been particularly put on hold, waiting for the new government policies, especially tax policies, to become clear. This month, the UK economy performed better than the eurozone, driving the pound to a two-year high against the euro. The pound rose half a euro against the euro, reaching its highest level since early August 2022.