PMI Slump, Tax Worries and Weakening Business Sentiment – What Q4 Holds

In September 2025, the S&P Global UK Composite PMI slipped to 51.0, down from 53.5 in August, signalling a marked slowdown in growth.

Firms cited weakening demand, rising costs and uncertainty over possible tax increases in the upcoming Autumn Budget as key headwinds. As confidence wobbles, many businesses are already trimming hiring and capital investment.

Underlying Drivers

• Export weakness: Declining international orders have weighed on manufacturing and services alike.
• Cost pressures: Labour, input prices and regulatory burdens remain significant constraints.
• Tax expectations: Firms anticipate that Chancellor Reeves may raise business taxes to plug borrowing gaps (borrowing in August reached a high).
• Margin squeeze: Companies are less able to pass on increased costs amid demand softening.

The ONS Business Insights Survey (mid-September 2025) backs this. Around 1 in 6 trading businesses expect a downturn in turnover in October, while economic uncertainty is cited by 28% as a key challenge—ranking ahead of labour or regulatory issues. Office for National Statistics

What Businesses Should Do in Q4

1. Tighten working capital
   Focus on receivables, inventory turnover, and payment terms. Stretching payables too far risks breaking supplier trust.
2. Review capex decisions
   Delay non-essential capital spend; only commit where returns are robust. Consider leasing or vendor financing to preserve liquidity.
3. Scenario-plan for tax hikes
   Model increased corporation tax, depreciation restrictions, or surcharge changes. Keep budgets flexible.
4. Protect margins selectively
   Where possible, adjust pricing in stepped increments in sectors with pricing power. Negotiate input contracts to fix costs.
5. Monitor hiring judiciously
   Freeze or delay recruitment in lower-margin areas. Use contractors or cross-skilling instead of permanent hires, where feasible.

How advisers can assist

• Help clients stress-test forecasts under 2–3 demand scenarios (flat, decline, modest growth).
• Run breakeven sensitivity analyses to spot when cost pivots become unsustainable.
• Build a “buffer reserve” strategy for cash cushions in case of slow months.

Headwinds may linger beyond 2025, but this Q4 demands discipline, flexibility and pre-emptive stress-testing.

Book a Q4 Stress-Test Review — forecast under multiple demand and tax scenarios.