The flash composite PMI jumped to 53.1, beating forecasts, while GfK consumer confidence plunged 11 points to minus 24. September retail sales fell 0.4%. Next week's budget comes before the Bank of England's Nov. 5 decision.
Britain's businesses and households sent opposite signals on Friday.
The S&P Global U.K. flash composite purchasing managers' index rose to 53.1 in October, its strongest reading since February and well above the 51.7 economists expected. The manufacturing index climbed to 52.8, against a forecast of 51.8, with factory output growing at its fastest pace in more than two years. Firms reported resuming hiring and cited demand related to artificial intelligence.
Consumers moved the other way. The GfK consumer confidence index fell to minus 24 from minus 13, an 11-point drop that was the sharpest monthly decline since early in the pandemic. Households' inflation expectations rose to their highest in nearly three and a half years.
Hard data on spending pointed in the same direction as the confidence survey. Retail sales volumes fell 0.4% in September, the Office for National Statistics said, after a 0.7% rise in August that was revised up from 0.5%. Sales were 0.8% higher than a year earlier and rose 0.7% over the third quarter as a whole.
The Bank of England's problem
The split arrives at an awkward moment. Consumer price inflation was 3.5% in September, with core inflation at 2.8%. The government delivers its budget on Oct. 28, and the Bank of England announces its next rate decision on Nov. 5.
The case for a November rate increase rests on the business data. Strong activity, rising hiring and higher cost pressures, combined with households expecting more inflation, are the conditions under which central banks worry about price pressures becoming entrenched. Some economists now see a hike as likely, Reuters reported.
The case against rests on the household data. A confidence drop of this size, and a fall in retail spending, suggest consumers are pulling back before a budget that may tighten fiscal policy. Raising rates into a consumer slowdown risks compounding it.
Markets
The pound slipped 0.15% to about $1.338 early Friday, a modest move given the size of the surprises in both directions.
What to watch
The budget on Oct. 28, particularly any tax measures that bear on households, and the Bank of England's Nov. 5 decision. The final October PMI readings and next month's retail sales will show whether the gap between firms and consumers narrows.