LONDON (Reuters) – British factory activity fell at the fastest pace in 11 months in December, with manufacturers cutting jobs due to higher taxes and delicate overseas demand, a survey showed on Thursday, the latest in a series of delicate readings on the economy.
The S&P Global UK Manufacturing Managers’ Index fell to 47.0 from 48.0 in November and was below December’s preliminary reading of 47.3.
Rob Dobson, director of S&P Global Market Intelligence, pointed to the stagnation in the domestic economy, delicate export sales and concerns about future cost increases, including those resulting from higher business taxes announced by Finance Minister Rachel Reeves.
The survey’s employment rate hit its lowest level since February as companies faced mounting cost pressure from higher transport and raw material costs, as well as an raise in employers’ national insurance that starts in April.
“With costs set to rise again in early 2025 as the announced budget changes come into force, the Bank of England is likely to remain cautious about further interest rate cuts, despite growing signs of economic difficulty,” Dobson said.
The BoE said it would only phase it in, introducing further cuts in borrowing costs while waiting to see whether Reeves’ budget increases inflation pressures.
Weak economic growth outside the UK resulted in the deepest decline in exports in 10 months, and overall modern orders fell by the most since October 2023, according to the PMI survey.
The British economy lost momentum around the time of the July election that brought Labor to power, with some employers blaming the modern government’s upbeat message about the outlook and subsequent announcement of tax increases.
Data released on December 23 showed that the economy did not grow at all for three months after the elections. The BoE also does not estimate growth in the fourth quarter, prompting the opposition Conservative Party to warn of the risk of recession.
December’s flash PMI for Britain’s dominant services sector showed modest improvement overall, but employment in both sectors fell by the most since January 2021.
The final services PMI for the last month will be published on Monday.
