British factory activity contracted in December at its fastest pace in 11 months, with manufacturers cutting staffing levels in response to higher taxes and sluggish foreign demand, according to a survey released on Thursday.
The S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.0 in December, down from 48.0 in November and below the preliminary estimate of 47.3. Any reading below 50 indicates contraction.
Rob Dobson, a director at S&P Global Market Intelligence, attributed the downturn to a stagnant domestic economy, declining export sales, and concerns over rising costs, including higher business taxes announced by finance minister Rachel Reeves.
Employment Decline and Cost Pressures
The survey’s measure of staffing fell to its lowest level since February, as manufacturers faced mounting cost pressures from increased transportation, raw materials, and an upcoming social security tax hike for employers set to take effect in April.
“With additional costs anticipated in early 2025 due to budgetary changes, the Bank of England is expected to adopt a cautious approach to interest rate reductions despite mounting economic challenges,” Dobson said.
Export and Growth Concerns
Weak global economic growth led to the sharpest decline in British exports in 10 months, with overall new orders falling at their fastest rate since October 2023.
The UK’s economic momentum has slowed significantly since the Labour Party’s victory in the July election. The new government’s tax policies and cautious economic outlook have drawn criticism from employers. Data released on Dec. 23 showed no economic growth in the three months following the election, with the Bank of England forecasting stagnation for the fourth quarter.
Broader Economic Impact
Employment across manufacturing and services sectors contracted at its steepest rate since January 2021, according to preliminary data. While the December PMI for services indicated slight improvement, final figures are set to be released on Monday.
The Conservative opposition has warned of a potential recession, citing the government’s economic policies and their impact on business confidence and investment.
