UK private sector growth hits four-month low
Newsflash: growth across the UK economy has slowed this month, to a four month low.
Data provider S&P Global has reported that UK private sector output is expanding at the slowest pace since May this month.
Its ‘flash’ survey of purchasing managers at British companies has found that growth is slowing in September, which is blamed on weak client confidence and heightened political and economic uncertainty.
The report also shows that UK manufacturing output is shrinking at the fastest pace in six months, due to weakening order books – partly due to the JLR hack that has frozen its factories since the start of the month.
S&P Global explains:
The latest decline in manufacturing output was the fastest since March, with survey respondents mostly citing weak order books from both domestic and export markets.
There were also some specific mentions of lower manufacturing output across the automotive supply chain as a result of plant stoppages at Jaguar Land Rover.
Key events
BoE’s Pill less worried about inflation, as he explains QT dissent
Encouragingly, Bank of England chief economist Huw Pill, is less worried about UK inflation than earlier this year.
Pill has been speaking at the inaugural Pictet Research Institute Symposium 2025 this morning, when he has explained he is now more comfortable with the outlook for price pressures.
Pill said (via Reuters):
“It’s always a question of a balance of risks. And you know, I have been on the side of saying maybe the balance of risks are more on the inflationary side than the disinflationary side.
“I think, through time, and also as markets reprice, that probably is changing. And personally, I’m more comfortable now than I was six, nine, 12 months ago.”
Last month, inflation was unchanged at 3.8%, almost double the Bank’s 2% target.
Pill is one of the more hawkish policymakers at the Bank, and opposed the decision to slow the pace of its quantitative tightening (QT) programme last week.
QT is the process where the Bank cuts the holding of government bonds it build up during the financial crisis and Covid-19. Last year, it conducted £100bn of QT, but now plans to only do £70bn over the next 12 months.
Pill, though, voted for another £100bn, which would have meant actively selling more bonds than the rest of the Bank policymakers were comfortable with.
Today, he explains that he wanted the Bank to maintain “continuity and consistency” in its approach to QT, saying:
What permits QT to operate “in the background” is the scope for Bank Rate (as the “active instrument”) to establish a policy stance that delivers inflation sustainably at target given the impact of QT on yields. With Bank Rate away from its effective lower bound and able to change in either direction, this is the environment in which QT has operated in recent years.
Operating within our established principles has allowed the market to price the impact of QT and has thereby allowed the MPC to set Bank Rate to achieve the inflation target given the impact of QT – as well as a multitude of other factors – on the yield curve, bank behaviour and wider financial and credit decisions.
Today’s OECD forecasts are a sign that “the bad news keeps piling up for the government”, says Kathleen Brooks, research director at XTB.
Brooks explains:
The OECD has said that the UK faces the highest level of inflation of any major economy this year. The OECD predicts that UK inflation rate will rise to 3.5% this year from 2.5% a year ago, and core inflation will rise to 3.7%, well above the G20 average rate.
The OECD has blamed food prices and has also pointed out that high levels of wage inflation is fanning the flames of price increases. This can also date back to the government’s large public sector pay rises, and the increase in the national minimum wage. Although the UK is set to have the second fastest growth rate in the G7 this year, growth has faltered in the second half of the year, and the OECD slashed its forecast for 2026 to a mere 1%, saying that fiscal tightening along with trade tariffs will weigh on the UK economy.
The OECD also urged the chancellor to maintain fiscal headroom to better react to any future shocks, through medium term ‘budgetary adjustment paths’ i.e., spending cuts. The private sector is hoping that Rachel Reeves will listen.
Q: Is the UK at risk of stagflation?
The OECD replies that this is not its working assumption.
It points out that growth is expected to pick up this year, and be around potential, while inflation is expected to come down.
OECD secretary-general Mathias Cormann then warns that an extended trade war will have no winners, and will only have losers
Q: Which countries will be most affected by US tariffs?
OECD chief eonomist Álvaro Pereira says the US, Canada and Mexico are expected to be most affected by these rising trade tensions, because their economies are closely linked.
In the next few months, these countries are due to engage in “important dialogue”, Pereira says, adding it is important that this leads to greater engagement and reduces trade barriers.
Q: Why has the OECD raised its inflation forecast for Australia?
OECD chief economist Álvaro Pereira says it’s only a small uptick, and not a big concern as Australia’s growth is expected to pick up too.
The OECD are now taking questions about their latest economic outlook.
Q: How can Europe close the competitiveness gap with the US?
OECD secretary-general Mathias Cormann says Europe should lift investment, saying higher investment leads to higher productivity growth.
This would also help Europe to benefit from the artificial intelligence boom.
OECD’s UK growth forecast: political reaction
Chancellor Rachel Reeves says there is “more to do” to improve the UK economy, after the OECD forecast it woud grow more slowly than the US, Canada and Germany next year:
“These figures confirm that the British economy is stronger than forecast – it has been the fastest growing of any G7 economy in the first half of the year.
“But I know there is more to do to build an economy that works for working people – and rewards working people. That is what I’m determined we deliver through our Plan for Change.”
Conservative party leader Kemi Badenoch, though, has blamed the Labour government for driving up inflation, saying:
The OECD report is a damning verdict on Starmer’s weak economic management. Growth is shrinking, inflation highest in the G7 – all driven by Labour’s tax hikes. Britain needs strong leadership and a clear plan.
Only the Conservatives will cut spending and live within our means.
The OECD report is a damning verdict on Starmer’s weak economic management. Growth is shrinking, inflation highest in the G7 – all driven by Labour’s tax hikes.
Britain needs strong leadership and a clear plan. Only the Conservatives will cut spending and live within our means. https://t.co/EsKhe7OU5x pic.twitter.com/oivlrSrg9D
— Kemi Badenoch (@KemiBadenoch) September 23, 2025
Here are some charts illustrating the risks to the economy cited by the OECD this morning:
The OECD singles out four risks to the global economic outlook – from rising borrowing costs to food inflation.
OECD chief economist Álvaro Pereira tells reporters that long-term fiscal risks have risen, leading to higher long-term bond yields.
He also warns that elevated asset valuations pose a risk, citing the jump in US tech stocks, bitcoin and gold.
The cost of living is another threat; Pereira explains that food inflation is driving goods inflation higher.
Fourthly, he warns of “refinancing risks” as a large amount of debt matures in the next few years.
The OECD are also forecasting that the UK will be hit by the highest inflation in the G7 this year, the Financial Times reports, as the country absorbs the impact of higher payroll taxes, an increase in the minimum wage and rises in regulated prices.
The FT adds:
Consumer prices will rise 3.5 per cent in 2025, up from 2.5 per cent last year, and remain well above the Bank of England’s 2 per cent target in 2026, the Paris-based organisation said on Tuesday.
OECD: Full impact of tariffs yet to be felt
The OECD’s secretary-general Mathias Cormann, is explaining why it expects growth to slow (see 10.00am).
Cormann is telling a press conference that the global economy has remained resilient through first half of 2025, with strong growth in several emerging markets including Brazil.
But looking ahead, trade flows and several high-frequency indicators point to slowing momentum, he says.
Cormann points to the US trade war, pointing out that the average tariff rate on imports into America is estimated to be 19.5%, higher than at any time since the mid-1930s.
The full effect of the trade war will be clearer as firms run down their inventories, and as higher tariffs continue to be implemented, he explains.
He also points to signs of slowdown in some economies, which is why growth is forecast to 3.2% from 3.3% in 2024.
Cormann then calls for “constructive dialogue between countries”, saying that well functioning open markets will lead to higher living standards.
At the same time, countrie should also tackle genuine concerns about trade amd economic security.
The OECD’s “strong advice” is for all countries to work together to make our international trade relatinshps function better.
It also says:
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central banks should remain vigilent due to high levels of uncertainty.
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governments should display fiscal discipline…
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… and also implement ambitious structural reforms
OECD: UK to fall down G7 growth table in 2026
The UK economy is expected to slide down the G7 growth league table next year.
The OECD sticking with its forecast that UK economic growth will slow to 1% in 2026. That would put it in the midtable for advanced economic growth next year, behind the US (+1.5%), Canada (+1.2%) and Germany (+1.1%).
The better news for the UK government is that the OECD has revised up its forecast for UK growth this year, from 1.3% to 1.4%. That would be the second-fastest G7 member, behind the US (+1.8%).
OECD: US tariffs to slow global growth
Newsflash: The OECD is warning that growth in the world’s economy will noticeably weaken over the rest of the year.
In its latest economic outlook, the Paris-based thinktank says higher US tariffs will dampen global trade and investment.
Global growth is forecast to decrease from 3.3% in 2024 to 3.2% in 2025, and 2.9% in 2026.
However, 2025’s figure is 0.3 percentage points higher than the OECD’s previous forecast set out in June.
“The economy is faltering”
Chris Williamson, chief business economist at S&P Global Market Intelligence, says today’s UK PMI survey showing Britain’s economy is slowing should set alarm bells ringing.
Williamson explains:
“September’s flash UK PMI survey brought a litany of worrying news including weakening growth, slumping overseas trade, worsening business confidence and further steep job losses.
The only good news is perhaps that, just as the Bank of England grows increasingly worried about persistently elevated inflation, the PMI indicated that price pressures have moderated in September. Companies reported one of the smallest increases in prices charged for goods and services seen since the pandemic.
With the weakening of business activity growth to a rate consistent with the economy almost stalling, and around 50,000 job losses being signalled by the PMI again in the three months to September, alarm bells should be ringing that the economy is faltering, which could help shift the policy debate at the Bank of England back towards a more dovish stance.
However, amid talk of further tax rises being needed in the Budget later this year, it’s not surprising to see that business expectations have worsened again in September, and in the absence of an improvement in confidence, it’s unlikely that the economy will make any strong gains in the months ahead irrespective of the outlook for interest rates.”
UK private sector growth hits four-month low
Newsflash: growth across the UK economy has slowed this month, to a four month low.
Data provider S&P Global has reported that UK private sector output is expanding at the slowest pace since May this month.
Its ‘flash’ survey of purchasing managers at British companies has found that growth is slowing in September, which is blamed on weak client confidence and heightened political and economic uncertainty.
The report also shows that UK manufacturing output is shrinking at the fastest pace in six months, due to weakening order books – partly due to the JLR hack that has frozen its factories since the start of the month.
S&P Global explains:
The latest decline in manufacturing output was the fastest since March, with survey respondents mostly citing weak order books from both domestic and export markets.
There were also some specific mentions of lower manufacturing output across the automotive supply chain as a result of plant stoppages at Jaguar Land Rover.
EU and Indonesia sign free trade deal
Lisa O’Carroll
Business leaders have welcomed the new trade deal between the EU and Indonesia hailing, saying “diversification is more urgent than ever” in “light of new risks” to EU economies but it has been criticised by environment groups.
The Indonesia-European Union Comprehensive Economic Partnership Agreement (CEPA) was sealed on Tuesday after nine years of talks.
The top commodities exported from the Indonesian market including palm oil as well as fishery and textile products.
The deal removes import duties on 98.5% of EU goods to Indonesia while Indonesian goods will enjoy zero tariffs in 90% of EU market with barriers remaining for palm oil.
The EU is hoping to seal deals with Thailand, Philippines later this year with hopes of a deal with India last week setback by its participation in Russian military exercises last week.
Germany’s confederation of businesses, BDI, said EU, US and China remain “indispensable”, but countries in south east Asia are “gaining considerable strategic importance” in the wake of Donald Trump’s tariff wars, the confederation of Germany industries.
Environment campaigners condemned the deal saying they, and civil society, were “shut out” of negotiations.
Nithi Nesadurai, director and regional coordinator of Climate Action Network in south east Asia, said the deal “props up polluting industries while deepening social and environmental crises, especially for the most marginalised communities”.
