In August, the UK’s private sector economy demonstrated unexpected growth, driven by political stability and consumer confidence. The PMI reached a four-month high, highlighting a robust expansion during this period.
Despite these positive trends, businesses are bracing for potential tax hikes in Rachel Reeves’s upcoming budget, reflecting a cautious outlook for the future.
The S&P Global composite purchasing managers’ index (PMI) climbed to 53.8 in August from 52.8 in July, exceeding analysts’ forecasts of 53.4. This marked a four-month high, indicating robust economic activity as any reading above 50 signifies expansion. The services sector also witnessed accelerated growth, with its PMI rising to 53.7 from 52.5.
Analysts attributed this growth to the enhanced political stability following the general election in July, coupled with more settled macroeconomic conditions. These factors boosted consumer spending significantly. Additionally, the Bank of England’s anticipated interest rate cuts also contributed to increased demand.
According to Tim Moore, economics director at S&P Global Market Intelligence, ‘August data highlighted a recovery in UK service-sector performance as improving economic conditions and domestic political stability helped to bolster customer demand.’
Conversely, Thomas Pugh, economist at RSM UK, indicated that despite growing demand for labour, the stable performance of the economy lessens the urgency for another rate cut in September.
Despite stronger sales, exports remain subdued due to ‘Brexit-related trade difficulties’ affecting sales to EU clients.
Some firms have voiced concerns about potential tax rises or spending cuts in the forthcoming Labour budget, which has tempered optimism despite a post-election bounce in business activity expectations.
Economists have expressed concerns over her decision to scale back investment projects in July and maintain austerity in certain government departments’ budgets. Plans from former Chancellor Jeremy Hunt, which include £20 billion in real-term budget cuts for unprotected government departments, add further pressure on public spending as the Labour government navigates complex economic conditions.
Services firms responded to stronger sales by increasing staffing levels in August, marking the eighth consecutive month of expansion.
In summary, August’s data reveal an unexpectedly resilient performance in the UK’s private sector economy, driven largely by political stability and consumer confidence. However, caution prevails among businesses due to anticipated tax changes in the approaching Labour budget.
While the PMI and GDP figures paint a positive picture, concerns over household disposable incomes and potential fiscal adjustments underline the need for careful monitoring as the economic landscape continues to evolve.
