The pound fell to its lowest level since April after stark warnings from an influential survey that Britain could be on the brink of an industrial recession.
The pound fell 1% against the dollar on Thursday, falling below $1.24, amid growing fears the UK economy is faltering. In stark contrast, optimism is growing in the United States, where tax cuts promised by Donald Trump are expected to boost growth and strengthen the dollar.
New data from the Purchasing Managers’ Index (PMI), compiled by S&P Global, showed that UK factory activity in December fell at the fastest rate in 11 months, with a reading of 47, down from 48 in November. This represents the third month in a row below the 50 threshold that separates growth from contraction.
Rob Dobson, economics director at S&P Global, warned that weak growth, dwindling exports and rising costs have rattled companies. Many of them are cutting staff and reducing orders.
“Manufacturers face an increasingly pessimistic backdrop,” he said. “Business sentiment is now at its lowest level in two years, as new government rhetoric and announced policy changes erode confidence and raise costs at UK factories and their customers alike.
“This sends a winter chill into the labor market. December recorded the biggest job cuts since February. Some companies are restructuring now, and expect employers’ national insurance and the minimum wage to rise in 2025.”
These numbers increase the chances that the UK will follow the Eurozone into an industrial recession. Manufacturers across the single currency area suffered a deep decline in December, with both France and Germany posting new declines.
France’s PMI fell from 43.1 to 41.9 in December, indicating the biggest decline in manufacturing activity since May 2020. Germany’s reading also fell to 42.5 from 43, extending its manufacturing struggles.
In contrast to the post-2009 debt crisis regime, Spain and Greece remain rare bright spots in the eurozone, with both showing growth last month.
“Within the eurozone, Spain is doing its own thing,” said Cyrus de la Rubia of Hamburg Commercial Bank, which publishes the index in collaboration with Standard & Poor’s Global. “The manufacturing sector continued to expand strongly by the end of the year, while the three largest countries in the eurozone remained… The euro – Germany, France, and Italy – is stuck in an industrial recession.
“Spain’s low exposure to China, at just 2% of exports, has helped insulate it, along with lower energy costs. However, it only accounts for about 12% of eurozone GDP, so it cannot lift the bloc’s economy on its own.”
The euro fell 0.35 percent to $1.03.
A Treasury spokesperson said: “We once introduced a Budget in Parliament to clean the slate and provide stability to businesses that need it most, without raising taxes on working people. By restoring political and financial stability, we are creating the conditions for economic growth through investment and reform.
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