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.
This was unchanged from a 13-month low in November and only pointed to marginal expansion in private sector output. Moreover, the rate of business expansion remained much weaker than it was and mixed trends were recorded 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 to a modest rise in services sector output (51.4) and the growth rate picked up slightly 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.
Employment declines and prices rise in the private sector
Data for December indicated that total employee numbers fell for the third consecutive month. Moreover, the rate of job losses in the private sector economy was the fastest in nearly four years. Service providers recorded a particularly sharp decline in employment at the end of 2024, which was mainly related to the failure to replace voluntary departures in response to rising recruitment costs. Some companies also noted that
Upcoming increases in National Insurance Contributions for Employers have encouraged reduced working hours and longer-term efforts to restructure the workforce. Rising salary payments and domestic inflationary pressures continued to drive cost burdens across the private sector in December. Overall, input price inflation accelerated for the second consecutive month to its strongest level since April. Manufacturers recorded the biggest rise in purchase prices since January 2023.
Anecdotal evidence pointed to higher transportation costs and raw material prices, as well as higher recruitment costs by suppliers.
Meanwhile, average prices charged by private sector firms rose at their fastest pace in nine months, led by a strong and accelerating rise in the services economy. Respondents commented on need to ease pressure on margins from rising salary payments, as well as business overheads and high prices paid for fuel and raw materials.
Finally, the outlook for business activity for next year slowed for the fifth consecutive month in December. The latest survey indicated the lowest degree of business optimism since December 2022, largely due to the continued decline in service sector confidence. Some companies noted the positivity associated with long-term business investment plans and upcoming new product launches. However, there have also been several reports that have indicated concerns about the impact of the tax increase measures announced in the autumn budget.
How does the spot manufacturing PMI affect the UK economy in general?
Purchasing Managers’ Index (PMI) affects the UK economy in many ways:
Growth forecast: PMI is a leading indicator that reflects the health of the manufacturing sector. A reading above 50 indicates growth, while a reading below 50 indicates contraction, helping to predict economic trends.
Investor confidence: Good PMI data boosts investor confidence, which can lead to increased investments in stocks and bonds, thereby supporting economic growth.
Impact on monetary policies: The Bank of England uses PMI data to assess the economic situation. Strong readings may push him to raise interest rates, while weak readings may lead to lower them.
Employment Trends: PMI changes indicate new employment trends. Manufacturing growth could lead to increased employment, while contraction could lead to layoffs.
Impact on prices: PMI also affects price pressures. If there is strong growth, inflation may rise, affecting economic decisions.
Impact on trade: PMI can reflect domestic and international demand, affecting the balance of trade. Strong data may point to increased exports, while weaker demand could lead to a decline.
Changes in the business environment: external factors such as economic crises or political changes can influence readings.
Regional changes: Differences in the performance of different sectors within the country can affect the PMI reading.
Data for other indicators: Comparisons with other economic indicators, such as GDP and employment, can enhance understanding of readings.
Inventory levels: Inventory changes reflect a company’s strategy in dealing with demand. Increased inventory may indicate weak demand, while a decrease may indicate strong activity.
Future signals: Focusing on current trends can help predict the future performance of the economy.
In general, PMI is an important tool for analyzing the economic situation in the UK and guiding investment policies and decisions.
