UK businesses are hitting the brakes on investment and hiring plans as they await Chancellor Rachel Reeves’ upcoming budget announcement, according to the latest Purchasing Managers’ Index (PMI) data. The PMI composite index fell sharply in November 2025, signaling near stagnation in business growth driven by uncertainty over potential tax increases and fiscal tightening measures. This cautious stance among businesses highlights concerns about the economic outlook and looming budget decisions that could reshape the financial landscape for companies across the country.
UK Economic Growth Shows Signs of Slowing
PMI Composite Index Drops to Near Stagnation
The S&P Global PMI composite flash estimate for November dropped to 50.5 from 52.2 in October, just barely above the neutral 50 mark that separates expansion from contraction. This reading missed economists’ expectations and indicates a sharp slowdown in private sector growth, with only a marginal 0.3% increase in production predicted for Q4 2025. The sluggish activity continues a trend of subdued growth seen in previous quarters.
Services Sector Slumps as New Business Declines
The services sector, which constitutes a significant part of the UK economy, saw its PMI fall from 52.3 to 50.5, reflecting a weakening in activity. For the first time since July, new business orders in services dropped, underscoring mounting caution among companies serving consumers and other businesses alike.
Manufacturing Shows Minimal Growth; Employment Declines
Manufacturing experienced slight improvement with PMI ticking up to 50.2 from 49.6, signaling marginal growth. However, overall private sector employment declined at its fastest pace in four months, revealing that companies are hesitant to expand their workforce amid uncertain economic conditions.
Businesses Brace for Tax Hikes and Fiscal Tightening
Fear of Tax Increases Pausing Investment and Hiring
Surveys reveal that over 80% of business leaders are apprehensive about impending tax hikes, with approximately 75% putting off new hiring and capital investments until the budget details become clear. This widespread fear reflects businesses’ anticipation of fiscal tightening measures proposed by Chancellor Reeves.
Revenue Raising and Budget Challenges
Chancellor Rachel Reeves is expected to raise an extra £20 billion to £30 billion through tax measures to address downgraded growth forecasts and rising borrowing costs. There is speculation about a potential rise in income tax rates for the first time since the 1970s, although smaller incremental adjustments may be preferred.
Economic Uncertainty Impacting Confidence
The slowdown is attributed partly to business uncertainty ahead of the budget and concerns about the tax burden’s impact on confidence and demand. Analysts warn this pause in economic activity could deepen if spending cuts and tax rises reduce consumer and business demand further.
Expert Reactions and Economic Implications
Business Economists Caution on Downturn Risk
Chris Williamson, Chief Business Economist at S&P, warned that the current freeze on business activity carries a “substantial possibility” of tipping into contraction, especially if the budget introduces significant demand-reducing policies.
Entrepreneurs’ Group Sounds Alarm
Andreas Adamides, head of the entrepreneur group Helm, described the PMI figures as a “flashing red light” for the economy, emphasizing that when such a large share of businesses expect tax increases and pause investments, it signals economic idling rather than expansion.
Bank of England Outlook
With inflationary pressures easing and private sector employment softening, the Bank of England is increasingly expected to cut interest rates in the near term to support a fragile recovery.
The latest PMI data reveal a UK economy standing at a crossroads, with business leaders cautious and growth subdued as Chancellor Reeves prepares to unveil a budget likely to include tough fiscal measures. The fear of tax increases and economic uncertainty has led many firms to postpone investment and hiring, raising concerns about the prospects for robust economic expansion in the coming months. How the budget balances the need to manage public finances while sustaining business confidence will be crucial in shaping the UK’s economic trajectory ahead.
