UK businesses post strongest activity growth since February as PMI rises

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UK business activity rises

Highlights

UK Composite PMI rises to 53.1 in October from 52.0 in September, surpassing forecasts and signaling robust growth in manufacturing and services.
Manufacturers see their strongest output increase in over two years and companies add staff for the first time since Rachel Reeves' 2024 budget tax hike.
Business cost inflation hits its highest since June, prompting expectations the Bank of England will raise interest rates on November 5 for the first time since 2021.

October PMI signals broader business momentum

As reported by Reuters, citing S&P Global, the preliminary UK Composite Purchasing Managers' Index rises to 53.1 in October from 52.0 in September, exceeding all forecasts in a Reuters poll of economists. The reading adds to signs that the economy is showing resilience to the energy price shock linked to the Iran war.

Manufacturers record their strongest output increase in more than two years, while services companies report faster growth in new orders. S&P Global says some businesses cite stronger sales from AI investment spending and rising demand for technology services.

Companies also add staff for the first time since hiring was hit by a tax increase in former finance minister Rachel Reeves' 2024 budget. Chris Williamson, chief business economist at S&P Global Market Intelligence, says some firms are delaying spending before next week's budget, which could leave room for stronger growth if finance minister John Healey avoids measures that hurt business.

Rate outlook and business risks remain in focus

Price pressures remain strong in October, with business cost inflation reaching its highest level since June, especially among manufacturers. Even so, prices charged by companies increase less sharply than in September.

Williamson says the inflation data make a Bank of England rate hike at its upcoming policy meeting a near certainty and also increase the likelihood of further rate rises into 2027. The central bank, which is concerned that higher energy prices could spread broader inflation, is expected to raise interest rates on November 5 for the first time in more than three years.

The survey also shows that business expectations for the year ahead edge up in October but stay below the long-term average. Companies remain concerned about the wars in Ukraine and the Gulf, as well as higher borrowing costs.

We previously reported on shifting expectations for the Bank of England’s next move as UK inflation stayed above target and economic data came in stronger than expected. That piece highlighted economists increasingly pricing in a 25-basis-point rate hike in November, while noting that higher energy prices had not yet fully fed through to broader consumer inflation and policymakers remained focused on inflation and volatility risks.

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