UK private sector business activity fractionally declined in November, a preliminary reading showed Friday, ending a 12 month streak of growth, amid weaker business optimism since the government’s budget.

The flash UK composite purchasing managers’ index fell to 49.9 points in November, from a final tally of 51.8 in October. The reading slipped below the 50 mark, which separates growth from decline for the first time in a year, and the PMI fell to a 13-month low.

S&P Global noted ‘widespread reports of fragile business confidence’ in the wake of the Labour government’s first budget, with the least upbeat sentiment regarding business activity expectations for the year ahead since December 2022.

The composite data is calculated using readings of the services and manufacturing economies.

The flash services PMI also hit a 13-month low, declining to 50 points from October’s final tally of 52.0. The manufacturing PMI faded to 48.6 points from 49.9, hitting a nine-month low.

‘Survey respondents typically commented on subdued customer demand. Some firms noted delayed investment decisions, as well as cutbacks to new projects in response to worsening domestic business conditions and geopolitical uncertainty,’ S&P Global said.

‘A combination of weak demand and rising payroll costs led to another marginal decline in private sector employment. Reduced headcounts were recorded in both the manufacturing and service sectors, with the former posting the fastest downturn for nine months. Private sector firms widely commented on hiring freezes and avoiding replacing voluntary leavers.’

S&P Global said cost burdens increased at a ‘robust and accelerated pace’, driven by the steepest rise in service sector input prices since July. Respondents noted growing salary pressures, rising technology costs, food prices and energy bills.

Optimism for the year ahead dropped sharply since October, due to a significant slide in service sector morale.

‘Reports from service providers overwhelmingly linked weaker optimism to forthcoming increases in payroll costs, alongside perceived disincentives to expand investments and hire additional staff,’ S&P Global explained.

S&P Global Market analyst Chris Williamson said: ‘Companies are giving a clear ’thumbs down’ to the policies announced in the budget, especially the planned increase in employers’ National Insurance contributions.

‘The November PMI is indicative of the economy slipping into a modest decline, with GDP dropping at a 0.1% quarterly rate, but the loss of confidence hints at worse to come – including further job losses – unless sentiment revives,’ he added.

Williamson concluded: ‘Encouragingly, inflation pressures have moderated further, with selling prices rising at the slowest rate seen this side of the pandemic. However, still-elevated rates of wage-related price and cost growth are being recorded in the service sector, potentially limiting scope for rate cuts among the more hawkish policymakers.’

The PMI survey features a panel of 650 firms in each of manufacturing and services. Data for the flash reading includes the responses of around 80% to 90% of them. Data was collected between November 12 and November 20.

Final November manufacturing data is released on December 2, before the services and composite readings together on December 4.

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