A survey of UK businesses showed a crisis of confidence in the run-up to the Budget, though it revealed a sliver of good news about inflation.
The 'flash' release of the September purchasing managers' index (PMI) revealed services and manufacturing companies see weaker growth, worsening overseas trade and more job losses.
However, economists said the monthly survey has underplayed the strength of the economy so far this year.
The preliminary PMI reading for the UK's all-important services sector so far this month was 51.9, above the 50 mark that separates growth from contraction, but down from the 52.2 reading for August and below the consensus forecast of 53.5.
The flash manufacturing PMI came in at 46.2, down from 47.0 for the prior month and below the 47.1 that economists expected.
Putting them together, but with the services sector having a stronger weighting, the UK composite PMI reading was 51.0, down from 53.5.
On inflation, companies reported the smallest increases in prices charged for goods and services seen since the pandemic.
But Chris Williamson, chief business economist at S&P Global Market Intelligence, which carries out the survey, said the overall weakening of business activity that the survey implied was "consistent with the economy almost stalling".
Responses to the survey suggested further job losses, he said, putting the number at around 50,000 job cuts in the three months to September.
"Alarm bells should be ringing that the economy is faltering," Williamson said, adding that this could help shift the policy debate at the Bank of England back towards further interest rate cuts.
"However, amid talk of further tax rises being needed in the Budget later this year, it’s not surprising to see that business expectations have worsened again in September, and in the absence of an improvement in confidence, it’s unlikely that the economy will make any strong gains in the months ahead, irrespective of the outlook for interest rates."
Take with a pinch of salt
The drop in the UK composite PMI to the lowest level since May "suggests that July’s stagnation has continued", said economist Thomas Pugh at RSM UK, which was "more bad news for Rachel Reeves after dismal borrowing figures last week".
However, he said the PMI "isn’t weak enough to push the Bank into more rate cuts this year", especially as both while there was a dip in input and output prices, they remain elevated.
Moreover, while the PMI survey is "effectively signalling stagnation" in the UK economy, Pugh said it should be taken "with a pinch of salt, as the PMI has significantly underplayed the strength of the economy so far this year".
With speculation and news stories based on thinktank proposals about tax rises in the Budget, Pugh says there is a risk that business confidence will drop further in the coming weeks, which in turn feeds into lower new orders and employment, exacerbating the economic woes facing the chancellor.
On inflation, Elliott Jordan-Doak at Pantheon Macroeconomics said the flash PMI suggests only a "very mild deceleration in price pressures", while despite its signals on the job market, other data suggests that the worst is over, "and that solid GDP growth will underpin a recovery in the demand for labour".
He added: "Big picture, we think the economy is ticking along at a solid pace. Granted, the drop in the PMI could be sending an early-warning signal that pre-Budget uncertainty is weighing on activity.
"That represents a downside risk to our growth forecast, and would be a repeat of last year’s drop in confidence and activity as tax-hike speculation abounded."
After August's strong PMI, he said a slight month-to-month drop is "likely noise rather than signal".
That was a point backed up by Matt Swannell, chief economic advisor to the EY ITEM Club, who said the PMIs "looked implausibly strong in August".
He agreed that individual monthly moves should be taken with a pinch of salt "as they can be heavily influenced by business sentiment".
So, as last month's strength might have reflected positive headlines on US trade deals, "some of this month's shift may be a response to concerns related to tube strikes and the growing inevitability of tax rises in the Autumn Budget".
Pugh predicted that growth is likely to be "modest over the next few quarters as consumer spending power is squeezed, taxes are increased again at the upcoming Autumn Budget, and a substantial minority of households continue to refinance their mortgages onto much higher interest rates".
He added that he expects no change to interest rates at the next MPC meeting, in November.