Preliminary PMI data for December showed the UK economy remained stagnant at the end of 2024, with growth momentum weakening compared to the start of the year. New orders fell for the first time in over a year, reflecting weak demand and a deep recession in manufacturing. This suggests that the slowdown may be spreading to the services sector.
Business confidence fell to a two-year low. Companies are increasingly concerned about sales forecasts and rising costs, particularly in terms of wages due to changes announced in the Budget. The survey price index showed inflation starting to pick up again.
Higher National Insurance contributions and new rules on workers led companies to cut back on hiring, with the rate of job losses in December the highest since the global financial crisis of 2009 (excluding the pandemic).
While the economy appeared to have stalled in the fourth quarter, the loss of confidence and job losses point to the risk of a deeper economic downturn in the new year.
Business activity increased only slightly for the second consecutive month in December. The seasonally adjusted S&P Global UK PMI Composite Output Index remained at 50.5, just above the neutral level of 50.0. The reading showed no change in GDP, closing the fourth quarter with the economy largely at a standstill.
The strong growth momentum before the General Election has now faded, largely due to the negative reaction of businesses and households to the new government’s policies.
While growth in the services sector picked up slightly, it remained subdued and was the second weakest in 13 months. Meanwhile, manufacturing output fell more sharply, marking a worrying contraction by PMI historical standards.
The situation was made worse when new orders fell for the first time in 13 months in December, reflecting a slowdown in demand that is likely to further dampen output in the new year.
Confidence in the 12-month outlook continued to decline in December, reaching a two-year low. Companies blamed policy changes in the Budget, particularly the increase in employer-paid National Insurance contributions. There were also concerns about overall government policy and sluggish export growth.
Business confidence is now below its long-term average, in line with the levels between the Brexit vote in 2016 and the start of the pandemic.
Job losses have been sharper, with large reductions in both the financial and leisure sectors. The number of people employed has been reduced for three consecutive months, with the rate of reduction in December being the highest since January 2021, during the COVID-19 lockdown. Excluding the pandemic, this level of job losses would be the highest since the 2009 global financial crisis.
This larger-than-expected decline in employment suggests that labour productivity is likely to improve, but a weakening labour market could weigh on consumer confidence and spending, adding further risks to economic growth in the months ahead.
At the same time, input costs are rising at a faster pace in the goods and services sectors, often driven by price increases by suppliers. This is linked to expectations of the impact of the Budget policy changes and rising wage rates. The rate of increase in input costs is the highest in eight months.
The average price of goods charged to consumers has also increased, pointing to rising inflationary pressures, particularly in the services sector. The price increase was the highest since March, and suggests that the underlying inflation rate in the UK is above the Bank of England’s 2% target.
Headline inflation rose to 2.3% in October from 1.7% in September, while core inflation rose to 3.3% in October from 3.2% the previous month.
Another important aspect of the December PMI survey was supplier delivery delays, indicating increasing supply chain disruptions. Delivery times were extended to their worst since February, when concerns about attacks in the Red Sea caused delays in deliveries.
These delays are often linked to port and shipping issues, including problems in the Red Sea, which can give suppliers additional pricing power. If these delays continue or worsen, they could add to inflationary pressures.
