UK Companies Swayed by a Wave of Tax Increases: Uncertainty Gradually Affects the Pound and Employment - Dual Headwinds with JLR Suspension and Tax Hike Expectations

The Chill of "Budget Eve" Sweeps Through the UK Economy—PMI Slowdown and "Tax Hike Expectations" Cloud Business Sentiment

UK businesses faced increased challenges in September. The S&P Global Flash PMI Composite fell to 51.0 (August: 53.5). While it remains above the expansion-contraction threshold of 50, the growth pace has visibly slowed. The services sector dropped to 51.9, a two-month low, and the manufacturing sector fell to 46.2, the lowest since April, with employment still on a declining trend. Business optimism for the future sank to its lowest since June. This is largely due to the expectation of tax hikes in the budget to be announced by Chancellor Reeves in November, which is causing businesses to be more cautious in their investment and hiring decisions.Reuters

The pain in the manufacturing sector was exacerbated by the production halt due to a cyberattack on Jaguar Land Rover (JLR). The UK's largest car manufacturer announced an extension of the halt until the end of September, impacting the extensive supply chain. This shock is reflected in the PMI's on-the-ground sentiment.Reuters

Why has the momentum slowed?

• Fiscal Constraints and Budget Expectations Misalignment: As the autumn budget on November 26 approaches, the need to meet fiscal targets leaves the possibility of tax hikes, which is dampening business sentiment.Reuters

• Persistently High Costs: The burden of wages and taxes remains, and the Bank of England (BoE) held its policy rate at 4% in the September meeting. The perception of high interest rates is putting a brake on financing and capital investment.Bank of England

• Individual Shocks: The prolonged halt of JLR has ripple effects on automobiles and components, becoming a downward factor for the manufacturing PMI.Reuters

How Did the Market React?

In response to the weak flash report, the pound softened slightly. While reflecting the growth slowdown, the BoE's stance on sticky inflation suggests that immediate rate cut expectations are limited.FXStreet

Voices from Organizations and Experts (Summary)

• CBI (Confederation of British Industry): There is concern that corporate tax increases could counteract growth targets, urging for strategic tax reforms rather than hasty tax hikes.Reuters

• Current Corporate Tax Burden: The corporate tax burden share for the 24/25 fiscal year is 30.5%, the highest this century, making the prospect of tax hikes a psychological burden.CBI

SNS Reactions (Trends)

• Investors and Traders: Following the PMI slowdown, the pound softened, and the view of "expansionary but almost flat" spread. In the short term, there were posts discussing the anticipation of rate cuts being brought forward.FXStreet

• Business Leaders and Industry Relations: On X (formerly Twitter) and LinkedIn, cautious opinions like **"If taxes increase, investment will be postponed"** are dominant. Meanwhile, constructive proposals such as "simultaneous long-term public investment and regulatory reform"** are also shared. Reuters UK posted the relevant article, sparking active discussions.X (formerly Twitter)
  (Note: The above summarizes the majority tone on social media, with individual posts summarized as typical examples)

What Is the Next Turning Point?

1. November 26 Budget: The handling of corporate tax, NICs (employer contributions), and investment tax relief will influence corporate planning.Reuters

2. BoE's Stance: The tug-of-war between growth slowdown and inflation. Whether the weakness in employment spreads, and how much price indicators stabilize are focal points.PMI SP Global

3. JLR's Resumption: The possibility of resuming operations in early October will determine the bottoming out of the manufacturing PMI.Reuters

Implications for Businesses (Practical Tips)

• "Phased Investment Connection": For large investments, increase phase ordering and reversibility, allowing throttling in response to changes in tax and interest rate headlines.

• Hedging and Cash Management: To prepare for pound fluctuations, diversify the hedging period for exchange and interest rates. For working capital, review inventory turnover and collection terms to maintain a thicker buffer.

• Redesigning Employment Plans: To avoid making costs permanent, focus on **variable cost structures (mix of temporary and outsourced work)** and skills retraining.

• Visualizing Policy Dialogue: Through industry associations (CBI/BCC, etc.), propose tax neutrality and investment promotion measures with data.Reuters