British business activity slowed in September while inflationary pressures intensified, adding to a challenging economic backdrop for Finance Minister John Healey ahead of his first budget next month, according to survey data reported by Reuters.
The S&P Global UK Services Purchasing Managers' Index fell to 51.7 in September from 52.5 in August, marking a three-month low. The preliminary reading was below the 52.0 forecast in a Reuters poll of economists.
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Services companies, which account for a large share of Britain's economic activity, reported their fastest increase in prices charged in four months. Input cost pressures also accelerated, partly reflecting higher energy costs linked to the escalating conflict in Iran.
S&P Global said the survey was consistent with quarterly economic growth of about 0.1%, significantly below the 0.4% expansion recorded in the second quarter.
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The weaker business activity comes as Healey seeks to maintain a positive outlook for the British economy ahead of the October 28 budget. Recent business and consumer data had pointed to greater resilience, but higher government borrowing costs and renewed inflationary pressures are complicating the outlook.
The survey also indicated subdued business confidence and continued weakness in hiring, adding to concerns about the impact of elevated borrowing costs on economic activity.
The data could also reinforce the Bank of England's focus on inflation. Financial markets on Tuesday were pricing in roughly a 60% probability of a rate increase at the central bank's November 5 meeting, according to Reuters.
Manufacturing provided a more positive signal. The flash manufacturing PMI rose to 52.0 in September from 51.7 in August, supported by stronger domestic orders, while confidence in the sector reached a seven-month high.
The improvement in manufacturing follows a separate survey from the Confederation of British Industry showing factory orders in September reached their strongest level since July 2023, Reuters reported.
Despite the manufacturing improvement, the broader picture remained mixed. The composite PMI, which combines the services and manufacturing sectors, declined to 51.7 in September from 52.5 in August.
With inflation pressures rising while overall growth remains modest, the latest PMI figures underline the difficult economic environment facing the government as it prepares its first budget next month.
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