British Manufacturing Activity Shrinks at Fastest Pace in 11 Months

LONDON (Reuters) – British factory activity shrank at the fastest pace in 11 months in December, with manufacturers cutting staffing levels due to higher taxes and weak foreign demand, according to a survey released Thursday. This is the latest in a series of disappointing readings on the economy.

The S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) fell to 47.0 from 48.0 in November, below the preliminary December reading of 47.3.

Rob Dobson, a director at S&P Global Market Intelligence, highlighted issues such as a stagnating domestic economy, poor export sales, and rising future costs related to higher business taxes announced by Finance Minister Rachel Reeves.

The survey revealed the staffing measure hit its lowest level since February, as companies grappled with increasing cost pressures from transportation, raw materials, and an upcoming rise in employers’ social security costs starting in April.

“With costs expected to rise again in early 2025 due to the announced budget changes, the Bank of England (BoE) is likely to remain cautious about further interest rate cuts, despite increasing signs of economic difficulties,” Dobson noted.

The BoE has indicated that it will implement cuts to borrowing costs only gradually, awaiting clarity on whether Reeves’ budget will exacerbate inflation.

Weak economic growth outside Britain caused exports to experience their steepest decline in 10 months, with overall new orders falling significantly since October 2023, the PMI reported.

Britain’s economic momentum faltered after the July election, which brought Labour into power. Some employers attribute this to the new government’s pessimistic outlook and tax hike announcements.

Data from December 23 showed no economic growth in the three months following the election, with the BoE predicting no growth in the fourth quarter either, raising recession concerns voiced by the opposition Conservative Party.

Although the preliminary December PMI indicated a minor improvement in Britain’s dominant services sector, employment across both sectors contracted at the fastest rate since January 2021. The final services PMI for last month is set to be published on Monday.