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LONDON (Reuters) - British factory activity shrank at the fastest pace in 11 months in December and manufacturers cut staffing levels due to higher taxes and weak foreign demand, a survey showed on Thursday, the latest in a string of weak readings on the economy.
The S&P Global UK Manufacturing Purchasing Managers' Index sank to 47.0 from 48.0 in November and was below a preliminary reading for December of 47.3.
Rob Dobson, a director at S&P Global Market Intelligence, pointed to a stalling domestic economy, weak export sales and concerns about future cost increases including from higher taxes on business announced by finance minister Rachel Reeves.
The survey's measure of staffing hit its lowest since February as firms faced rising cost pressures from higher transportation and raw material costs as well as from the social security increase for employers which will start in April.
"With costs expected to rise again in early 2025 as the announced budget changes come into effect, the Bank of England is likely to remain cautious about further interest rate cuts, despite rising signs of economic difficulties," Dobson said.
The BoE has said it will move only gradually with further cuts to borrowing costs as it waits to see whether Reeves' budget adds to inflation pressures.
Weak economic growth outside Britain pushed exports into their sharpest fall in 10 months and overall new orders fell by the most since October 2023, the PMI found.
Britain's economy lost its momentum around the time of the July election which brought Labour into power with some employers blaming the new government's downbeat message about the outlook and then its tax increase announcement.
Data published on Dec. 23 showed the economy did not grow at all in the three months after the election. The BoE has estimated no growth in the fourth quarter either, prompting the opposition Conservative Party to warn of a risk of recession.
The preliminary December PMI in Britain's dominant services sector showed a slight overall improvement, but employment across both sectors contracted by the most since January 2021.
The final services PMI for last month is due to be published on Monday.
(Writing by William Schomberg; Editing by Hugh Lawson)
