Britain’s two-speed economy: firms speed up while shoppers lose heart

What happened

Two surveys published on 23 October told opposite stories about the UK economy.

Businesses are doing well. S&P Global’s flash composite PMI, a monthly survey of purchasing managers, rose to 53.1 in October from 52.0, its highest since February. New orders grew at the fastest pace in 25 months, and companies added staff for the first time since September 2024, ending two years of job cuts. Some firms said spending linked to artificial intelligence was lifting sales.

Households are not. GfK’s consumer confidence index fell 11 points to −24. A drop that large last happened in July 2016, after the Brexit vote; only the start of the pandemic produced a bigger one. Every part of the index fell, including how people see their own finances over the next year.

The same day, official figures showed retail sales volumes fell 0.4% in September, after a 0.7% rise in August. The Office for National Statistics pointed mainly to weak clothing sales in unusually warm weather, but some economists see the first signs of households tightening their belts.

Why the two can diverge, for a while

Businesses and households are feeling the oil shock differently. Firms that sell to other businesses, or that benefit from investment in new technology, can keep growing even as energy costs rise. Households feel higher fuel and energy bills directly, and they are expecting more: inflation reached 3.5% in September, and markets expect the Bank of England to raise interest rates on 5 November.

But the gap rarely lasts. Household consumption is roughly 60% of UK GDP, so if shoppers cut back, businesses that sell to them eventually feel it too. That is how an oil shock reaches growth: prices first, spending next, output later.

Where it sits in the chain

This is the last link of an oil shock, the real economy, seen from two sides. For now, the business side is winning. The question is whether falling confidence turns into lower spending over the winter, when energy bills are expected to rise again.

It also shapes the choices facing policymakers. Strong business activity and rising prices argue for a rate rise. A consumer squeeze argues for caution. And the Chancellor presents the Budget on Wednesday with stronger growth than forecast, but little room to cut taxes.

What to watch

• The Budget on 28 October, and the official forecaster’s new growth figures.
• The Bank of England’s decision on 5 November.
• October retail sales and November consumer confidence, the first test of whether the squeeze is spreading.