UK PMIs paint brighter picture than expected but income tax hikes threaten growth

The October PMI figures paint a brighter picture than expected, suggesting that uncertainty ahead of next month’s budget is not having as much of a damaging impact on UK economic activity as we had foreseen.

Overall business activity came in comfortably above expectations, rebounded solidly from September’s near stagnant levels. The growth outlook hangs in the balance, however, held back in large part by elevated inflation, a weakening of the jobs market and the rising business costs associated with April’s tax hikes.

The Autumn Budget looms large, with markets fearful that the government could unveil billions of pounds worth of additional tax increases to plug the estimated £25 billion hole in the public finances. Our biggest worry is that Labour could potentially ditch its manifesto pledge to avoid income tax hikes, a move that we believe would have serious implications for UK growth in 2026.