UK PMI Drops Below 50: Manufacturing and Services Hit 13-Month Lows in November

UK PMI Signals Economic Weakness Amid Rising Costs and Declining Optimism

The UK economy experienced a notable slowdown in November, as S&P Global’s Flash PMI data revealed weakening business activity, reduced workforce numbers, and rising cost pressures. Both manufacturing and service sectors faced subdued demand and fragile confidence, with the composite PMI slipping below the neutral threshold of 50.0 for the first time in over a year.

Key PMI Readings

• Composite PMI: Dropped to 49.9 from October’s 51.8, signaling a marginal contraction.
• Services PMI: Held steady at 50.0, reflecting stagnant activity levels.
• Manufacturing Output Index: Fell to 49.3, the fastest decline since February.
• Manufacturing PMI: Slipped to 48.6, also a nine-month low.

The decline in activity was driven by reduced demand, cautious investment decisions, and heightened geopolitical uncertainties. Manufacturers, particularly in the automotive sector, reported steep falls in new orders, while service providers cited subdued client confidence post-Autumn Budget.

Employment and Cost Pressures

Private sector employment declined for the second consecutive month, with businesses refraining from replacing voluntary leavers to manage rising payroll costs. Workforce reductions were more pronounced in manufacturing, marking the steepest contraction in nine months. At the same time, input costs surged, particularly in the services sector, fueled by wage pressures, energy bills, and technology costs. Despite these challenges, inflation in prices charged by businesses eased slightly, marking the slowest rise since February 2021.

Business Optimism at a Low

Business confidence tumbled to its lowest since December 2022, particularly in the service sector, where optimism was dampened by concerns over rising payroll taxes and investment disincentives. Manufacturers cited domestic economic worries and potential global trade tensions as factors weighing on sentiment, though some were hopeful for improved clarity following the recent US elections.

Market Forecast

The PMI data suggests the UK economy may contract at a modest 0.1% quarterly rate. With business confidence eroding, further job losses and reduced investment are likely in the months ahead. However, easing inflation pressures could support a more dovish monetary policy stance in 2025. Overall, a bearish outlook prevails as the UK faces growing headwinds from subdued demand, cost pressures, and policy-related uncertainty.