UK business activity contracted for the first time in a year as confidence in Labor fell

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UK business activity contracted for the first time in more than a year, according to a closely watched survey, as the private sector warned that confidence in the Labor government had been hit hard by the Bank. books last month.

The Composite PMI, a measure of the health of the UK’s manufacturing and services sectors, slipped below the 50 mark, showing that most groups are now reporting worsening conditions.

After the data was released, on the heels of disappointing retail sales figures, sterling fell 0.5% against the dollar to $1,252, its weakest level since May.

Chris Williamson, of S&P Global, said: “Companies are clearly opposing the policies announced in the Budget, particularly plans to increase employer national insurance contributions.” .

The flash index produced by S&P Global fell to 49.9 in November from 51.8 the previous month, with business reported output decline for the first time in just over a year.

The figure was the lowest since October 2023, contrary to analysts’ expectations that the index would be unchanged from the previous month.

Williamson said business optimism has plummeted since the July 4 general election in the UK. Many companies say the £25 billion increase in the NIC, which Labor says is needed to shore up public finances and invest in the NHS, will lead to job cuts and push up inflation.

“The mood is overwhelmingly negative,” said Samuel Johar, president of board consulting firm Buchanan Harvey, at a recent reception for CEOs, bankers and private equity executives. surprising”. “They seem to have lost faith in the government after just a few months,” he added.

A leading City headhunter says that, while companies want a “long-term, business-savvy, investor-friendly” government. . . What they receive is not long-term, not business-oriented and not investor-friendly.”

The headhunter added that the government needs to “address this issue, otherwise a short-term problem will become an insurmountable problem”.

Last month Budgetincluding a national living wage increase, has strained Labor’s relationship with groups in sectors including retail and hospitality, despite Reeves’ pledge to work closely with businesses and the most “pro-growth” Treasury leadership in the UK.

Elias Hilmer, economist at consulting firm Capital Economics, said the PMI drop suggests GDP may now be shrinking after barely growing in the third quarter.

He added that the tax increase “appears to have limited some private sector activity” and that the possibility of new tariffs imposed by US President-elect Donald Trump “could also affect activity.” ”.

However, he said the increase in government spending announced in the Budget – a factor that is unlikely to be included in the PMI survey – could help boost growth.

The Office for Budget Responsibility and the Bank of England both predict that provisions in the Budget – especially greater public spending – will boost GDP in the short term while increasing inflation.

Separate data published by Office for National Statistics on Friday showed the sharpest monthly drop in retail sales since June, a monthly decline of 0.7% in October.

That beat economists’ forecasts for a 0.3% decline and came as September sales growth was revised down to 0.1%.

“Retailers said consumers were restraining their spending ahead of the Budget,” said ONS senior statistician Hannah Finselbach, adding that October was “a particularly bad month for with clothing stores.

The October 30 budget comes after months of warnings from the new government about painful tax increases.

Samantha Phillips, partner at management consultancy McKinsey & Company, said for many retailers it was a “disappointing start to the quarter”, with the focus shifting to “how to build momentum” first. festival period.

However, data released by research firm GfK on Friday indicated that consumer confidence has regained some ground since the Budget, rising three points in November to minus 18.

The Eurozone composite PMI also fell to a 10-month low on Friday of 48.1 as manufacturing sank into a deeper recession and the services sector struggled amid a concerns about future US tariffs and a weakening German economy.

This story has been corrected to clarify that PMI figures show the pace of change in business activity