24 September 2026: The Composite PMI cools to 51.7 in September

The country needs to make “stronger efforts” to cut spending and bring debt under control as growth slows this year and next, the Organisation for Economic Cooperation and Development said.

The Paris-based think tank expects output to expand by 1.1% in 2026 and 1% in 2027, down from 1.3% last year. At the same time, it sees inflation staying well above the 2% target as the energy shock weighs on Britain’s prospects.

The forecasts published yesterday put the UK in the middle of the Group of Seven growth pack over the next two years, behind the US, Germany and Canada on average, as global AI investment offsets the impact of conflict in the Middle East.

Inflation will average 3.1% this year, then drop to 2.6% in 2027, but the OECD believes the Bank of England can keep a lid on prices simply by holding rates until next year before cutting them by a quarter of a point to 3.5% at some point during Q2’27.

The forecasts will come as unwelcome news for Prime Minister Andy Burnham as he looks for a boost to fund defence spending and social care reforms. Official figures earlier this week showed borrowing running ahead of target, limiting his scope for giveaways at the budget on Oct. 28.

Growth cooled in September, according to S&P Global’s survey of purchasing managers published yesterday, amid the drag from higher borrowing costs and energy prices caused by the Iran war. Caution is also building ahead of the budget, with Chancellor of the Exchequer John Healey expected to raise taxes to repair the public finances.

Healey will estimate the fiscal headroom his measures will create. Still, it will be like plucking a figure from the ether, as such predictions are entirely subjective and often wildly optimistic.

September’s data also indicated a reduction in export sales at UK private sector firms, with the rate of contraction accelerating to its fastest since June. A sustained downturn led to this in the service economy. Although only slight, the reduction in export orders at manufacturing companies was the first since December 2025. This was often attributed to lower sales to EU customers.

Employment numbers fell in September, marking two years of continuous job losses. However, the latest reduction in workforce levels was only marginal and notably softer than the average seen in the first half of this year.

Higher operating costs, efficiency gains, and a lack of pressure on business capacity were all cited as reasons for subdued staff hiring, especially in the service economy. In the manufacturing sector, employment rose for the sixth consecutive month, partly due to the fastest rise in work backlogs since January 2022.

The latest survey indicated a steep, accelerating rise in average cost burdens at private sector companies, with inflation hitting a three-month high. Input cost pressures were stronger in both the manufacturing and service sectors in September, with energy prices the most commonly cited factor.

Many survey respondents also noted rising prices paid for energy, labour and raw materials (especially copper and steel). As a result, prices charged by private sector firms rose at a robust, accelerating pace, with overall inflation the highest since June.

MPs are rallying around the OBR and supporting its remit ahead of Chancellor John Healey's Budget next month.

A cross-party group in Parliament has warned that politicians must not use Britain's fiscal watchdog as a scapegoat for tough spending choices driven by constrained public finances.

Ahead of the Budget, the Commons Treasury Committee published a new report mounting a robust defence of the OBR's independence.

The cross-party committee dismissed what it described as "siren calls" for wholesale reform of the economic forecaster.

In their report, MPs argue that such political pressure typically stems from a desire to unlock greater spending headroom.

Furthermore, the group cautioned that this impulse is a "poor substitute" for developing a coherent economic strategy.

Dame Meg Hillier, the Labour MP who chairs the committee, pushed back firmly against those who portray the OBR as exercising undue influence over the Treasury.

She said: "Certain policymakers and commentators like to characterise the OBR as a wielder of dark powers with a stranglehold on Treasury ministers and officials. It's simply not true."

Sterling softened modestly yesterday, with movements driven almost entirely by broad US-dollar strength rather than UK-specific news.

As a lifelong real estate investor whose businesses rely on debt and interest rates, Donald Trump might be expected to know better: The 1% rate he keeps demanding from the US Federal Reserve is impractical and would likely backfire, analysts say.

A policy rate slashed that low, from its current range of 3.75% to 4%, would likely trigger massive dislocation in the global financial system and leave the US government paying more to borrow in bond markets than it does now.

After the Fed, under its relatively new chair, Kevin Warsh, hiked rates last week, Trump criticised the decision and repeated the 1% figure.

"The President, in his own way, is saying, 'I don't like the pain of this,' but he should be clear that it's not the Fed's fault for having to raise rates," said Grover Norquist, head of the conservative group Americans for Tax Reform and an outside Trump economic adviser.

Given the importance of controlling inflation ahead of voting in November, some administration allies privately praised Warsh after the rate decision.

A White House ally who liaises with Warsh told Reuters that calls for 1% are unrealistic given how global bond markets work.

"Can everybody just wake up? If you mess up the bond market, it’s good for the bond investor and no one else."

Trump's pressure on the Fed goes beyond the 1% rate request.

He aims to oust Governor Lisa Cook, an appointee of former President Joe Biden. He is also awaiting the results of an inspector general's probe into former Chair Jerome Powell's oversight of a Fed construction project. Powell remains a Fed governor, denying Trump a new appointee at the Central Bank.

Some analysts say the Fed remains a useful scapegoat for Trump, who heads into the midterms with mortgage rates nearing 7% and prices for staples like ground beef and gasoline also rising, underscoring affordability issues and a disapproval rating topping 60%.

Inflation has increased since early in Trump's term, driven by the combined shocks of his tariffs and energy costs from the US war with Iran, among other things, although, in fairness, it has moved away from the Fed’s 2% target over the past five years.

The Fed's preferred inflation measure was 3.7% in July, and it doesn't expect that rate to fall to a 2% target before 2029, suggesting inflation could remain elevated for Trump's entire term.

US business activity accelerated sharply in September, with preliminary readings of S&P Global's composite, services, and manufacturing PMIs all reaching multi-year highs.

The composite PMI climbed to 58.4 from 56.0 in August, a more-than-five-year high, while the services PMI advanced to 58.7, its strongest reading in four years. Manufacturing also strengthened, with output up to 56.7 and the headline PMI jumping to 57.0, both the highest readings since 2022.

S&P Global said growth was driven by a further surge in services activity alongside a renewed pickup in factory output. The increase in services output is most likely attributable to the growing use of AI.

New orders accelerated across both sectors, supported mainly by domestic demand, while hiring also strengthened, with employment rising at the fastest pace in more than four years as firms sought to meet rising workloads. Backlogs increased at the sharpest rate since mid-2022, reflecting capacity pressures and ongoing supply delays.

The Federal Reserve is reinforcing its tightening stance following last week's rate increase, as officials assess stubborn inflation and resilient economic activity. Governor Michael Barr says the risks to meeting the Central Bank's inflation target have risen, even as concerns about the labour market have eased.

National Economic Council Director Kevin Hassett questioned why Fed policymakers are pursuing monetary tightening given a recent 2% core inflation rate. Hassett accused Central Bank officials, who were not appointed by President Donald Trump, of undermining Fed independence through public calls for additional rate hikes.

Tensions at the Federal Reserve have flared as former leadership, including Jerome Powell and Michael Barr, have remained on the Board of Governors after stepping down from their executive roles.

The US dollar strengthened across global FX markets yesterday, extending its recent rally and outperforming nearly all major currencies. Hawkish Federal Reserve communication, strong US PMI data, and higher US Treasury yields drove the move, reinforcing expectations of further tightening.

The European Central Bank may raise interest rates again if high energy prices spread to other sectors. Gabriel Makhlouf, a member of the Bank’s Governing Council and Governor of the Central Bank of Ireland, said yesterday.

According to Makhlouf, inflation remains above the ECB's target level, but the regulator currently does not see secondary inflation effects. This refers to a situation in which higher energy costs spread to prices in other areas of the economy.

He noted that if high energy prices persist and affect other price categories, the ECB will have to take action again to achieve its inflation target.

Earlier this month, after the ECB's second rate hike this year, Makhlouf warned that more significant monetary tightening could harm economic growth.

Makhlouf’s comments were backed by compatriot Philip Lane yesterday. He believes that upcoming interest-rate decisions could prove less straightforward than September's 25bp hike, as policymakers weigh a more persistent energy shock against limited second-round effects, stronger-than-expected economic activity and tighter financial conditions.

"Let's see, as we go into the meetings in the rest of this year and into next year, whether every decision will be so straightforward," Lane said. "We don't always have a situation where the decisions are straightforward."

Christine Lagarde said she expects to complete her mission as President of the European Central Bank by the end of her term, amid speculation that she will leave early to allow the French government to help select her successor before next year’s election.

“When I look back at all these years, I think that we have accomplished a lot, that I have accomplished a lot,” she said in an interview with The Wall Street Journal. “We need to consolidate and make sure that this is really solid and reliable. My baseline is that it will take until the end of my term.”

Lagarde said she views her mission as ensuring price and financial stability, as well as “protecting the Euro, making sure that it is solid and strong and fit for the future of Europe.”

She declined to comment on a Financial Times report that she would step down before her term ends in October 2027. The ECB said in a written statement that Lagarde hadn’t made a decision about the end of her term, but stopped short of denying the report.

Germany’s economic debate is increasingly shaped by two pressures that seem separate but are becoming hard to distinguish: the declining competitiveness of its automotive industry and political pressure from expensive fuel.

The latest EY analysis shows how severe the first problem has become. Volkswagen, Mercedes-Benz and BMW generated combined revenue of about €284 billion in the first half of 2026, down 2.9% from a year earlier.

Across the 19 major international manufacturers EY examined, revenue increased 3.6% to roughly €1.048 trillion. It was the third consecutive first-half revenue decline for the German manufacturers.

The deterioration is not limited to sales. Operating profit at the three German groups fell 19% to €13 billion, while their combined operating margin declined to 4.6%. Meanwhile, the broader group of manufacturers recorded an 11.4% increase in operating profit.

EY’s figures therefore point to a problem deeper than a temporary slowdown in car demand: German manufacturers are finding it harder to convert their global scale into competitive profitability. China is particularly important.

Sales by the German manufacturers there fell 25% during the first half, reducing China’s share of their global vehicle sales from 28.9% to 23.5%. Chinese consumers have increasingly favoured domestic brands, particularly in electric vehicles, while Chinese manufacturers are simultaneously expanding into Europe.

The Euro weakened yesterday across global FX markets, with EUR/USD sliding towards late-July lows as stronger US data and hawkish Fed expectations outweighed better-than-expected Eurozone PMIs. The move was USD-driven, not a collapse in Eurozone fundamentals.

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