Retail sales slumped 0.7% last month as jittery Brits feared Budget

The UK's private sector has gone into reverse for the first time in a year as the impact of Labour's eye-watering Budget tax raid becomes clear. 

Closely-watched PMI figures for this month were worse than analysts had pencilled in amid mounting fears of a slowdown.

The reading was 49.9 instead of the 51.8 expected, with anything below 50 representing a contraction. S&P Global Market Intelligence, which compiles the index, said business was giving a 'clear thumbs down' to the measures. 

The blow - which helped push the pound to a six-month low against the US dollar - emerged as separate figures revealed shops saw sales slump last month ahead of Rachel Reeves' major tax and spend package.

Retail volumes were down by 0.7 per cent, far more than anticipated, as nervous consumers waited for the Budget hammer to fall.

The Office for National Statistics also revised down the 0.3 per cent growth estimated for September to just 0.1 per cent.

Retailers were already warning of job cuts and price hikes to come after Labour hiked employer national insurance contributions.

The measure is set to raise £25billion for the Treasury, helping to fund a spending splurge on public sector wages and services - but economists have warned it will also hold down growth and fuel inflation.  

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: 'The first survey on the health of the economy after the Budget makes for gloomy reading.

'Businesses have reported falling output for the first time in just over a year while employment has now been cut for two consecutive months.

'Although only marginal, the downturns in output and hiring represent marked contrasts to the robust growth rates seen back in the summer and are accompanied by deepening concern about prospects for the year ahead.

'Business optimism has slumped sharply since the general election, dropping further in November to hit the lowest since late 2022.

'Companies are giving a clear 'thumbs down' to the policies announced in the Budget, especially the planned increase in employers' national insurance contributions.'

Analysts at Capital Economics said: 'The fall in the Composite PMI suggests that tax hikes announced in the Budget seem to have restrained some private sector activity. 

'Equally so, the prospect of new tariffs imposed by the incoming Trump administration may have weighed on activity too.' 

Sanjay Raja, chief UK economist at Deutsche Bank, said: 'PMI output indices slipped in November. 

'Notably, the services headline print moved down to a stagnant 50, with the headline manufacturing print slipping further into contraction territory at 48.6. 

'Overall, the composite output index fell into negative territory for the first time since October 2023.'

Underneath the hood, we are seeing stress on hiring plans. Both the manufacturing and services sectors reported falls in hiring plans. And (input) prices – particularly for services – have started to firm – as businesses digest the Budget tax implications.

The fall in retail sales volumes in October was heavier than expected, with economists predicting a 0.3 per cent decline.

ONS senior statistician Hannah Finselbach said: 'Retail sales fell back in October following three months of growth.

'The fall was driven by a notably poor month for clothing stores, but retailers across the board reported consumers held back on spending ahead of the Budget.

'However, when we look at the wider trend, retail sales are increasing across the three month and annual periods, although they remain below pre-pandemic levels.'

It was announced yesterday that the government had racked up the highest ever October borrowing outside of Covid as Labour splurges on public sector pay and services.

Public sector borrowing hit £17.4billion last month, far higher than the £13.3billion pencilled in by analysts.

The official figures have only been higher in October once since records began - when the pandemic was raging in 2020.

The data raises fresh questions about the direction being taken by Sir Keir and Ms Reeves. 

Experts warned that the dire situation could mean the Chancellor hammers Brits again in the coming years, despite the burden already being set to reach an all-time high.