Leading Indicators | A softer landing takes shape...

BoE rate cut expectations build as inflation holds at 3.8%

UK inflation held steady at 3.8% in September, coming in below the Bank of England’s 4% forecast, and signalling that price pressures may have peaked following earlier rises in food prices and employer National Insurance costs. The softer-than-expected reading sparked a clear shift in market sentiment, with markets now pricing in more than a 70% probability of a December rate cut, reversing earlier expectations that policy rates would remain unchanged through year-end.

UK debt elevated, but broadly in line with peers

According to the IMF’s latest projections, the UK’s fiscal position is broadly in line with other advanced economies. UK public debt, at just over 100% (101.2%) of GDP, sits below the US and France and close to the advanced-economy average. While borrowing has risen sharply since the pandemic, the UK is not a fiscal outlier, offering some reassurance ahead of the November Budget. However, with limited fiscal headroom, the government is likely to remain cautious on new spending or tax measures.

UK PMIs indicate modest expansion in October

The UK Composite PMI increased to 51.1 in October from 50.1 in September, indicating a modest expansion in private-sector output at the start of the fourth quarter. The services PMI rose to 51.1 from 50.8, marking a sixth consecutive month above the 50 threshold, while the manufacturing PMI moved up to 49.6 from 46.2, remaining in contraction but showing a slower rate of decline.