"Consumption Freeze" on the Eve of the UK Budget: October PMI is on the verge of the boom-bust line, and a retail cold wave is approaching.

PMI survey shows that in the weeks leading up to the Labour government's budget announcement, UK businesses saw almost no growth in October, with expectations of tax hikes seeming to dampen market sentiment. Furthermore, retail sales in October also fell more than expected. PMI falls below expectations, economic growth stagnates Preliminary data released on Friday showed that the S&P Global Purchasing Managers' Index (PMI) fell from 52.2 in October to 50.5 in November. This value is just slightly above the 50 mark (representing economic expansion) and significantly below economists' expectations of 51.8. "Economic growth has stalled, the pace of layoffs has accelerated, and business confidence continues to deteriorate," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "Some of the weakness is attributed to businesses pausing spending decisions ahead of the autumn budget announcement, but this pause is likely to turn into an economic downturn." This report further confirms that Chancellor Rachel Reeves' budget announcement on November 26 is already putting pressure on the economy. Reeves needs to fill a multi-billion pound public finance gap to offset the impact of costly policy reversals and rising borrowing costs. S&P stated that the November PMI data implies that Gross Domestic Product (GDP) has essentially not changed, and the UK economy's growth rate in the fourth quarter may be only 0.1%. The UK's services sector, typically at the core of economic growth, saw almost no expansion this month. Service providers reported that new orders had their first decline since July, as customer attitudes became increasingly cautious. Manufacturing, on the other hand, showed a slightly more positive trend: driven by growth in domestic orders, manufacturing expanded for the first time in 14 months. Businesses noted that export demand performed better than expected, with some highlighting an increase in sales to the Asia-Pacific region and the Middle East. However, the overall employment rate in the private sector experienced its fastest decline in four months. Businesses reported that they were no longer filling vacancies left by departing employees, with some opting to invest in technology instead of hiring. This report from S&P may give the Bank of England more confidence that inflation pressures are easing. Despite rising input costs, businesses reported that output price inflation had fallen to the lowest level in five years. Williamson pointed out that these data suggest "policy discussions will further shift from inflation concerns to support the struggling economy, increasing the likelihood of a rate cut in December." UK retail sales see a sharp decline Official data shows that UK retail sales saw a larger-than-expected decline in October, mainly due to consumers tightening their spending before the holiday season and the Labour government's budget announcement on November 26. The Office for National Statistics (ONS) reported that the total volume of online and offline retail sales fell sharply by 1.1% month-on-month, compared to a revised increase of 0.7% in September. The report showed that supermarket sales and clothing sales both declined due to consumers tightening their spending ahead of Black Friday. After the data was released, the pound gave up its gains, with the GBP/USD exchange rate at 1.307. In addition to retail sales data, the ONS also released data showing that public borrowing in the UK exceeded expectations. "Fears of tax hikes in next week's budget have hit household confidence," said Nicholas Found, Commercial Content Director at Retail Economics. This report further confirms the market's view that the UK economy has stalled ahead of Chancellor Rachel Reeves' budget announcement next week. Reeves had considered breaking her election pledge of not raising income tax and is now planning to increase several other taxes to fill a multi-billion pound public finance gap. Retail sales in October ended a five-month streak of growth, falling below economists' expectations with a month-on-month decline of 0.2%, marking the worst retail sales performance since May. The decline in sales in October was partly due to consumers delaying spending until Black Friday. This trend was particularly evident in clothing sales (falling from the previous month's peak) and online shopping. However, concerns about rising cost of living against the backdrop of next week's budget remain the primary concern for consumers. With real wage growth slowing and unemployment rising, households are preparing to cope with the impact of tax hikes. Food sales in the month fell by 1.1% month-on-month, marking the second consecutive month of total supermarket sales decline. On Friday, UK market research firm GfK reported that all of its consumer confidence measures saw declines in November. Another report from the British Retail Consortium (BRC) also indicated that Chancellor Rachel Reeves' abandoned plan to raise income tax in November had hit consumer confidence. The BRC stated that most consumers expect the UK economy to further deteriorate over the next three months, with only 14% expecting an improvement. Inclement weather may also have contributed to consumers staying away from high streets. The UK Met Office said that October was one of the "dullest" months on record in the UK, with temperatures higher than usual, causing some consumers to delay purchasing winter clothing. "In our view, as political uncertainty increases, the risks to economic growth are slightly shifting towards the downside," said Rob Wood, Chief UK Economist at Pantheon Macroeconomics.