LONDON (Reuters) – British factory activity shrank at the fastest pace in 11 months in December and manufacturers cut workforces due to higher taxes and weak foreign demand, a survey showed on Thursday, the latest in a series of weak data about the economy.
The S&P Global UK Manufacturing Purchasing Managers’ Index fell to 47.0 from 48.0 in November, below the provisional reading of 47.3 for December.
Rob Dobson, director at S&P Global Market Intelligence, pointed to a stagnant domestic economy, weak export sales and concerns about future cost increases, including from higher taxes on businesses announced by Treasury Secretary Rachel Reeves.
The survey’s headcount reached its lowest level since February, as companies faced increasing cost pressures due to higher transport and raw material costs and from the increase in social security for employers due to start in April.
“With costs expected to rise again in early 2025 as announced budget changes come into effect, the Bank of England is likely to remain cautious about further rate cuts despite increasing signs of economic difficulties,” Dobson said.
The BoE has said it will only take gradual steps with further cuts to borrowing costs, pending whether Reeves’ budget will increase inflationary pressures.
Weak economic growth outside Britain pushed exports to the sharpest fall in ten months and total new orders fell by the most since October 2023, the PMI showed.
The British economy lost momentum around the July election, which brought Labor to power. Some employers blamed the new government’s gloomy message about the prospects and then the announcement of a tax increase.
Data released on December 23 showed that the economy did not grow at all in the three months after the election. The BoE has also forecast no growth for the fourth quarter, prompting the opposition Conservative Party to warn of a risk of recession.
December’s preliminary PMI in Britain’s dominant services sector showed a slight overall improvement, but employment in both sectors shrank the most since January 2021.
The final services PMI for the past month will be published on Monday.
