UK economy shows signs of holding up ahead of Labour’s budget

[LONDON] The UK private sector grew faster than expected in October, with economic data showing little sign of nervousness ahead of near-certain tax rises in next month’s Labour government budget.

S&P Global’s composite purchasing managers’ index increased to 51.1 from 50.1 the previous month, flash estimates published on Friday show. The reading was stronger than the 50.5 forecast by economists and remained above the 50 threshold indicating expansion. 

The improvement was most pronounced among British manufacturers, which returned to growth for the first time since October last year.

Businesses became more optimistic about their growth prospects in the year ahead despite mounting speculation that Chancellor of the Exchequer Rachel Reeves will increase taxes by billions of pounds on Nov 26. It’s a stark reversal of the situation a year ago when confidence plummeted in the run-up to Labour’s first budget due to ministers’ repeated warnings of “difficult decisions.”

The PMI release “completes a clean sweep of data this morning – after consumers’ confidence for October and retail sales in September – that suggests household and business confidence remains solid,” said Elliott Jordan-Doak, an economist at Pantheon Macroeconomics.

Retail sales grew unexpectedly in September thanks to strong demand for household goods and jewellery, according to Office for National Statistics data published earlier Friday. A GfK survey overnight also revealed that consumer confidence improved in October to match the highest level recorded in 2025 as its indicator tracking big purchases intentions rose to the highest since early 2022.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

The raft of better-than-expected data will provide some relief for Reeves. However, the indicators are not strong enough to signal that a meaningful recovery is on the cards for the UK economy.

Pantheon Macroeconomics estimates that the latest PMI numbers put the UK on track to grow by an average of just 0.1 per cent on the quarter. That’s slower than expected by Bank of England rate-setters who forecast 0.3 per cent growth.

S&P’s survey also provided some signs of softening demand. Services firms only reported a modest uptick in activity, citing weak consumer sentiment and clients postponing decisions due to Labour’s budget.

SEE ALSO

UK inflation unexpectedly holds at 3.8% in September

Manufacturing offered a slightly more upbeat picture. While the sector is still reeling from the cyberattack at Jaguar Land Rover, factory output grew at the fastest pace in over a year, thanks to improving domestic demand and restocking efforts. 

“October’s flash UK PMI survey brings hope that September was a low point for the economy from which business conditions are starting to improve,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. BLOOMBERG