UK Factories Plunge into Recession, Adding to Economic Woes
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British manufacturers experienced their sharpest decline in output since the COVID-19 pandemic in late 2020, signaling a deepening economic slowdown, reports Reuters. The Confederation of British Industry's (CBI) monthly industrial trends survey, released Wednesday, revealed a significant drop in output and a darkening outlook for the sector.
The survey's key output gauge plummeted to -25 for the three months to December, marking a substantial decrease from -12 in the previous period. This represents the lowest point since August 2020. Manufacturers are also considerably less optimistic about the coming months, with output expectations tumbling to -31, the weakest reading since May 2020.
"Manufacturers are facing a perfect storm of weakening external demand on the one hand, amid political instability in some key European markets and uncertainty over US trade policy," said CBI lead economist Ben Jones. "And on the other hand, domestic business confidence has collapsed in the wake of the Budget, which has increased costs and led to widespread reports of project cancellations and falling orders," he added.
This downturn in manufacturing comes amidst broader economic weakness in the UK. Recent official data showed a contraction in economic output during September and October, preceding the October 30 budget announcement by Chancellor Rachel Reeves. The budget, which included an increase in social security contributions for businesses, has further dampened business confidence.
The CBI survey also highlighted a significant decline in order books, falling to -40 in December from -11 in November, marking the lowest point since November 2020. However, despite the challenging environment, firms are signaling an intent to raise prices, with price charge expectations reaching a four-month high at +23 this month.
The Bank of England, which expects headline inflation to rise in 2025, has indicated its intention to gradually cut borrowing costs. Official inflation data released earlier on Wednesday showed an eight-month high in November. The CBI survey, based on responses from 331 manufacturers, was conducted between November 25 and December 11.