In December, the UK's manufacturing sector experienced its most pronounced downturn in almost a year, as reported by S&P Global's latest survey data on Thursday. The declines in output, new orders, and employment were notably accelerated during this period.
The manufacturing purchasing managers' index fell to 47.0 in December from 48.0 in November, with any figure under 50 indicating a contraction. The preliminary reading stood at 47.3.
Production plummeted at a rate not seen since January, affecting consumer, intermediate, and investment goods sectors. This decline was attributed to muted domestic market sentiment, destocking by customers, manufacturers' efforts to avoid excessive inventory, and decreased demand from European clients.
New orders continued their downward trend and fell at the fastest rate since October 2023. Export orders also saw the sharpest decline in ten months, with reduced intake from clients in Europe, Asia, and the USA.
Consequently, manufacturing employment saw further reductions, reaching a ten-month high in job losses by December. This was partly due to tough market conditions and anticipated rises in employers' National Insurance contributions and the National Minimum and Living Wages, prompting companies to cut working hours and pursue long-term workforce restructuring.
Regarding pricing, input cost inflation surged in December, driven by increased expenses for raw materials, transportation, material shortages, taxes, and currency volatility. Consequently, companies were compelled to raise their selling prices due to both current and anticipated future cost pressures.
Looking forward, business confidence dipped to its lowest level in two years in December, fueled by concerns over market confidence, inflationary pressures, escalating costs, and forecasts of slower economic growth.
Rob Dobson, Director at S&P Global Market Intelligence, stated, "With costs projected to rise again in early 2025 as the newly announced budget changes take effect, the Bank of England is expected to maintain caution regarding additional interest rate cuts despite mounting signs of economic challenges."
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