December’s data pointed to another marginal increase in UK private sector output, as rising business activity across the services economy helped offset the accelerating slowdown in manufacturing output. However, total new orders fell for the first time in 13 months amid widespread reports of weaker business and consumer spending patterns.
A combination of weaker demand, higher hiring costs, and shrinking margins contributed to a further decline in private sector employment at the end of 2024 and the latest decline in workforce numbers was the sharpest since January 2021. The UK’s seasonally adjusted global PMI came in at 50.5 in December.
That remained unchanged from a 13-month low in November and only pointed to a marginal expansion in private sector output. Moreover, businesses expanded at a much weaker rate, and mixed trends appeared in the manufacturing and services sectors in December. The former recorded a second consecutive monthly decline in production volumes (45.7), with the rate of decline accelerating to its fastest level since January. By contrast, the latest survey indicated a modest rise in services sector output (51.4) and growth slightly uplifted from a 13-month low in November.
Survey respondents commented widely on growth headwinds from fragile consumer confidence, tighter corporate budgets, and cuts in unnecessary spending. The December data pointed to a slight decline in total new work across the private sector economy, which ended a 12-month expansion period. This was driven by a sharp and accelerated decline in new orders in the manufacturing sector.
Commodity producers have often noticed shrinking customer inventories and the impact of weak demand from European customers, resulting in the fastest decline in total export sales since October 2023.
Market Reactions to GBP Spot Manufacturing PMI
The impact of the disappointing PMI reading on the markets was significant. Following the announcement, the pound saw a decline against major currencies, reflecting investors‘ concerns about the health of the manufacturing sector. A weaker PMI usually indicates lower confidence among manufacturers, which could lead to lower investment levels and slower economic growth.
Currency traders reacted quickly, sending sterling lower as expectations grew that the Bank of England may need to consider more accommodative monetary policies to stimulate the economy.
This interaction stands out because of the current economic climate, where inflationary pressures continue to pose a concern. Any sign of weakness in key sectors might spark discussions about lowering interest rates to support growth.
In addition to the currency market reactions, the stock market also felt the impact of weaker PMI data. Shares of manufacturers, especially those heavily dependent on domestic demand, saw declines as investors reassessed their expectations for future earnings.
Public sentiment in the stock market turned cautious, with analysts warning that prolonged weakness in the manufacturing sector could spill over into other areas of the economy. Since the manufacturing sector is often seen as an indicator of overall economic performance, the recent PMI reading has raised fears of a broader economic slowdown. Investors are now bracing for potential impacts that could affect consumer spending and investment across various industries.
As analysts look to the future, the focus will be on whether the manufacturing sector is able to stabilize or if there are further declines on the horizon. The interplay between global supply chain challenges, consumer sentiment and geopolitical factors will be crucial in shaping expectations for future PMI readings.
Expectations for the current month on the Immediate Manufacturing PMI for the British Pound
Looking ahead, analysts are adopting a cautious stance regarding the PMI outlook for the current month. While the previous month’s decline provides a clear indication of the challenges faced by the manufacturing sector, several factors will be decisive in determining whether the trend will continue. One key area to watch is the impact of global supply chain disruptions, which have been an ongoing problem for manufacturers around the world.
Ongoing challenges related to logistics, material shortages and shipping delays can significantly affect production capacities. If these issues persist, they could exacerbate the current contraction in the manufacturing sector, leading to further declines in the PMI for the coming month.
Another important factor to consider is the general economic environment in the UK, especially in relation to consumer demand. Recent consumer sentiment surveys have pointed to mixed expectations, with concerns about rising living costs and inflation weighing on spending behavior. If consumers retreat from spending, it could create a vicious circle that further affects industrial output.
The upcoming holiday season will also be pivotal, as manufacturers rely heavily on consumer spending during this period. If consumers remain reluctant to spend, it could lead to a significant drop in production levels, exacerbating the challenges the sector already faces.
Moreover, the geopolitical landscape may complicate the situation for UK manufacturers. Ongoing uncertainty related to trade agreements, Brexit fallout, and international relations can create an environment of instability affecting business confidence. Manufacturers operating in export markets may be particularly vulnerable to shifts in trade policies and tariffs, which can affect their competitiveness. Therefore, any developments in these areas will be closely monitored as they may affect PMI readings in the coming months.
