UK economic downturn eases but manufacturing output falls

The downturn in UK economic activity eased in December, but output in the manufacturing sector fell to a four-month low, according to a survey released on Friday.

The S&P Global/CIPS flash composite purchasing managers' index, which measures activity in both the services and manufacturing sectors, rose to a three-month high of 49.0 from 48.2 in November. This was ahead of expectations for a reading of 48.0.

A reading above 50 indicates expansion, while a reading below signals contraction.

The services sector was behind most of the improvement, with the flash PMI business activity index rising to 50.0 this month from 48.8 in November, hitting a three-month high.

However, the manufacturing output index fell to 43.9 in December from 44.7 a month earlier. The flash UK manufacturing PMI fell to 44.7 from 46.5.

The survey also showed that companies took a more cautious stance when it came to staffing levels, with overall employment falling for the first time since early 2021.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The December data add to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September.

"For now, the downturn looks to be relatively mild, and the easing in the rate of decline in December is encouraging news, as is the further marked cooling of inflationary pressures. However, the fact that the downturn has moderated compared to the turmoil created in the immediate aftermath of the botched ‘mini budget’, most notably in financial services, is no real cause for cheer. It is especially worrying to see business confidence and order book indicators remain so low by historical standards, with both of these key gauges signalling heightened degrees of economic stress.

"Hence it’s no surprise to see that businesses are battening down the hatches, most notably by reducing headcounts, in a sign that the downturn not only has further to run but could yet accelerate again, especially given December’s further hike to interest rates."