Yesterday, the pound hit its lowest level against the US dollar in almost nine months as figures showed a ‘winter chill’ descending on British manufacturers following the Labor Budget.
Sterling fell more than a cent to less than $1.24, its lowest since April 23, as purchasing managers’ index (PMI) data showed the sector contracted at its fastest pace in 11 months.
Confidence has fallen to its worst level in two years following Rachel Reeves’ gloomy rhetoric about the economy and her £25bn attack on employer National Insurance (NI) contributions.
Businesses are now scrambling to cut staffing costs as they prepare for a rise in NI – which sharply increases the cost of employing staff – in April.
December’s PMI reading for the sector fell to an 11-month low of 47, down from 48 in November, on the scale where 50 separates growth from contraction.
Rob Dobson, director of S&P Global Market Intelligence, which compiled the report, said companies were facing a ‘deteriorating backdrop’ and higher costs for UK factories and their customers.
Manufacturing slump: Sterling fell more than a cent to less than $1.24, its lowest since April 23, as PMI data showed the sector contracted at its fastest pace in 11 months
Smaller companies were ‘particularly hard hit during the last crisis’, he added.
‘This is sending a winter chill to the job market.’ The survey showed that companies are reducing the number of employees at the sharpest pace since February.
Dobson said: ‘Some are now acting to restructure businesses ahead of increases in employers’ national insurance and minimum wages in 2025.’
He said global market conditions were also taking their toll, with exports hit by lower demand from Europe, Asia and the US.
It is the latest bad economic reading for the UK since Labor took power.
The latest official data shows that Britain has achieved zero growth in the third quarter of 2024. And the Bank of England has predicted another period of stagnation for the fourth quarter.
Lee Hardman, currency analyst at MUFG, said that if there were further signs of weakening ‘and the Bank starts making noise about potentially being more active in terms of cutting rates in response’, this could add pressure on the pound.
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