Private sector grows at slowest rate in three months

Output in the private sector fell by more than expected last month, declining to the slowest pace in three months.
A measure of business activity, known as the purchasing managers’ index, dipped from 53.8 to 52.6 in September, lower than an initial estimate of 52.9. It was the weakest reading since June, according to S&P Global, which helps to compile the service.
Output in the services sector, which makes up nearly three quarters of the domestic economy, declined from 53.7 to 52.4 last month. Any figure above 50 indicates an overall rise in output.
Service sector companies said that their overall business, employment and new work slowed in September, while prices charged to consumers were at a three-year low. In further signs of a cooling labour market, companies said that the rate of job creation fell to a three-month low and that export demand was softer than domestic orders owing to trade friction with the European Union.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The September PMI surveys suggest that the UK economy is still on a positive trajectory, with improving order books accompanied by cooling inflationary pressures.
“Most encouragingly, prices-charged inflation in the service sector, which acts as a barometer of domestic inflationary pressures, edged down to its lowest since February 2021. Lower borrowing costs, easing price pressures and more certainty regarding the monetary policy outlook all helped to boost growth expectations in the service sector.”
The PMI reading is consistent with GDP growth of 0.4 per cent in the third quarter, which runs from July to September, according to calculations from Pantheon Macroeconomics, a consultancy.
Some firms reported heightened uncertainty in September before Labour’s first budget on October 30, in which the government is expected to announce changes to the taxation of capital gains and pensions savings.
“The PMIs signal a dip in growth in September related to uncertainty ahead of the October 30 budget, but forward-looking parts of the survey suggest growth will rebound later in the year,” Elliott Jordan-Doak, senior UK economist at Pantheon, said.
The PMI surveys are used as an indicator of future growth and reported positive overall output last year, when the economy rebounded after a brief recession.
Matt Swannell, economic adviser to the EY Item Club, a forecaster, said that September’s decline in the composite PMI was not “a major cause for concern” but that overall quarterly growth was likely to slow from the heights recorded at the start of this year.
“The data can be noisy month to month and history suggests there’s a seasonal pattern to the results, with the index often falling in September,” Swannell said. “The composite PMI outturn is only slightly below the average for the first nine months of the year. This suggests that the UK economy continues to maintain good momentum.”
Economic output in the eurozone fell to a seven-month low in September on the back of declines in Germany, France and Italy.
The eurozone’s three largest economies reported an outright contraction in their private sectors last month for the first time since December last year, according to the purchasing managers’ index compiled by S&P Global and Hamburg Commercial Bank.
Overall activity in the 20-country bloc fell to 49.6 from 51 in September. The figures are the latest in a string of data showing prolonged weakness in the eurozone, which has suffered from rising energy prices, high interest rates and a weakening global economy for the past two years.
Spain was the eurozone’s best-performing economy, with rising economic activity and a PMI reading that climbed from 53.5 to 56.3, a four-month high. Germany, Europe’s largest economy, was the worst performing with a PMI reading of 47.5, the weakest since February, while France recorded 48.6 and Italy 49.7. The data will put pressure on the European Central Bank to cut interest rates for the third time in four months to help prop up the continent’s larger faltering economies.