UK business growth hits 11-month low ahead of the budget; UK borrowing costs rise as Reeves prepares fiscal rule change – business live

Crisis-ridden utility firm Thames Water may be thrown a lifebuoy by its creditors to keep it afloat while it restructures its debts.

Reuters are reporting that a group of Thames Water creditors have proposed an alternative liquidity package of up to £3bn to give the company more time to seek a debt restructuring.

Reuters says:

The group, comprising investors with hundreds of millions of pounds worth of so-called B notes, hope their plan will compete with one proposed by a more senior ranking group of A bondholders, two sources said, speaking on condition of anonymity because the matter is private.

The group, whose members include large institutional investors and banks, is offering the company a new debt facility of £1.5bn to £3bn, at an interest rate of 8%, according to the sources.

It is unclear if the company will consider the proposal or how the group will put it together.

Thames, whose credit rating has been slashed deep into junk territory, warned last month that it could run out of cash as soon as December.

It has been asking its lenders to relax its repayment terms, to give more time to tackle its £15bn debts pile.

More gloom!

Sentiment across the UK manufacturing sector has fallen at the fastest pace in two years, according to the CBI’s latest healthcheck.

The CBI’s Business sentiment index has fallen to -24%, down from -9% in July, showing that more companies were pessimistic rather than optimistic about their prospects.

Export optimism for the year ahead also fell, to -16%, from 0% three months ago.

Companies also reported that output fell in the last three months

Total new orders fell in the quarter to October, driven by the sharpest decline in domestic orders since July 2020, as well as lower export orders.

Ben Jones, CBI lead economist, says:

“Sentiment in the manufacturing sector appears to have soured in recent months. Demand has softened both at home and abroad. And although cost pressures have eased, costs are still rising faster than prices, implying a further squeeze on margins.

The recent downturn is expected to bottom out in the coming quarter, which is encouraging. But amid a more uncertain outlook manufacturers have scaled back their plans to invest in buildings, capital equipment, innovation and training.

Jones adds that manufacturers want a confidence-boosting budget that supports business and leads to more investment, concluding:

While possible tax rises remain a concern, firms believe that clarity over future tax plans, measures to enhance productivity, and the country’s net zero trajectory can all help cement the path to long-term growth.”

UK consumer confidence has fallen, driven by gloom among older people and poorer households.

PwC reports that its Consumer Sentiment survey shows a plunge in confidence, to its lowest level this year.

The index has dipped to -8, its lowest point this year and the biggest quarterly drop since Spring 2022 – when Russia’s invasion of Ukraine hit confidence.

Optimism fell particularly sharply in the last quarter among the over-65s, who are now the least optimistic age group for the first time since 2016, and among those in the lowest socioeconomic group.

But, sentiment has increased among younger people, with 18-24 year olds, and 25-34 year olds the only age groups to have seen an improvement in sentiment since July.

PwC says:

The survey reveals a growing polarisation in sentiment between demographic groups, reversing the narrowing trend from earlier in the year

Worryingly, over 70% of respondents are plannng to make short-term spending cuts, noting that household finances have weakened slightly since the summer. That could put festive spending at risk.

PwC explains:

Festive spending is vulnerable to weaker sentiment, with more people now saying they plan to spend less on Christmas presents and celebrations than those who say they’ll spend more.

Newsflash: UK private sector growth has slipped to its lowest in almost a year, as nervous companies brace for next week’s budget.

Data firm S&P Global reports that growth is slowing this month, to the weakest pace since last November.

Companies reported that clients were delaying decision-making, due to heightened economic uncertainty in October – ahead of Rachel Reeves’s first budget, and with conflict in Ukraine and the Middle East continuing.

There was also concerns among clients about near-term domestic economic growth prospects, the report says.

Business confidence weakened, to the lowest since November 2023, leading firms to cut headcounts for the first time this year.

This pulled the Flash UK PMI Composite Output Index, which measures activity across the private sector, down to 51.7 this month, down from September’s 52.6, an 11-month low.

Growth across both manufacturing and services weakened; here’s the details:

• Flash UK Services PMI Business Activity Index at 51.8 (Sep: 52.4), an 11-month low.

• Flash UK Manufacturing Output Index at 50.9 (Sep: 53.6), a 6-month low.

• Flash UK Manufacturing PMI at 50.3 (Sep: 51.5), a 6-month low

Chris Williamson, chief business economist at S&P Global Market Intelligence, says:

“Business activity growth has slumped to its lowest for nearly a year in October as gloomy government rhetoric and uncertainty ahead of the Budget has dampened business confidence and spending. Companies await clarity on government policy, with conflicts in the Middle East and Ukraine, as well as the US elections, adding to the nervousness about the economic outlook.

The early PMI data are indicative of the economy growing at a meagre 0.1% quarterly rate in October, reflecting a broad-based slowing of business activity, spending and demand across both manufacturing and services.

Worryingly, the deterioration in business confidence in the outlook has also prompted companies to reduce headcounts for the first time this year.

The downturn in Germany (see previous post) is holding the eurozone economy back from growth this month.

The HCOB preliminary composite euro zone Purchasing Managers’ Index has inched up to 49.7 for October, up from 49.6 in September, but still below the 50-point mark that separates expansion from contraction.

The report found that Germany and France were again the main sources of weakness, while output increased in the rest of the eurozone.

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says the eurozone is “stuck in a bit of a rut”, adding:

The ongoing slump in manufacturing is being mostly balanced out by small gains in the service sector. At the country level, it can be noted that the deterioration of the situation in France was met by a slight moderation in the decline in Germany.

For now, it is not clear whether we will see a further deterioration or an improvement in the near future.

The economic downturn in Germany is continuing this month, as businesses cut jobs as output declines.

The latest survey of purchasing managers from across Germany’s private sector shows that conditions continue to deteriorate across Europe’s largest economy, led by its ailing manufacturing sector.

Businesses have reported further decreases in output and employment amid a backdrop of weak underlying demand, with workforce numbers falling at the fastest rate for nearly four-and-a-half years.

Data provider S&P Global reports that its HCOB flash Germany Composite PMI Output Index has come in at 48.4 this month.

That’s still below the 50-point mark that shows stagnation, but is slightly better than September’s seven-month low of 47.5 (implying Germany’s economy is still shrinking, but at a slower rate than last month).

Manufacturing production fell again, although the service sector grew a little faster.

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, suggests Germany’s economy could grow this quarter, saying:

“The start to the fourth quarter is better than expected. With services growing at a faster pace and manufacturing shrinking not as quickly as in the previous month, growth in the fourth quarter is a distinctive possibility.

Even so, GDP may stay flat for the whole year as forecasted by the International Monetary Fund in its latest projection, after a 0.3% decline in 2023. This underscores the structural weaknesses of the German economy, such as high energy costs, the increased competition from China and the labour market shortages which are all hitting the manufacturing sector hard.