German outlook improves but UK downturn deepens

BRITAIN’S manufacturing downturn deepened at the end of the year, just as the outlook in Germany started to improve.

Falling demand for consumer goods and plunging exports drove a fresh slump in UK factory activity in December, which fell to 46.2, down from a seven-month high of 47.2 in November, according to S&P Global’s purchasing manager’s index (PMI).

High interest rates and economic stagnation have hammered business confidence, which fell to a one-year low.

Just as the UK’S manufacturing sector is getting worse, the index for German manufacturing rose to an eight-month high of 43.3, in a sign that the worst of the downturn in Europe’s largest economy is now over.

This was the fifth month in a row that the outlook has improved in Germany, where the sector has been hammered by high energy prices and falling consumer demand in China.

The slight improvement in Germany pushed up overall eurozone manufacturing activity to a seven-month high of 44.4. But factory activity was still in the doldrums. Any reading below the 50 no-change benchmark means activity is still falling, albeit at a slower pace.

In the UK, falling business confidence meant manufacturers were scrambling to cut back on costs with a wave of redundancies and hiring freezes. Manufacturing companies continued to shed jobs for the 15th month in a row.

Manufacturers said clients were delaying their factory orders because of the bleak economic outlook.

Official data showed gross domestic product (GDP) fell by 0.1pc between July and September and by 0.3pc in October, sparking fears of a technical recession, defined as two consecutive quarters of falling growth.

High borrowing costs and the Covid hangover have also depressed overseas demand. New export orders have been falling every month for nearly two years, with drop-offs in demand from key trading partners such as the US, China and Europe.

Rob Dobson, a director at S&P Global Market Intelligence, said: “With concerns about high interest rates and the cost of living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy.”