UK manufacturing confidence slumps after Rachel Reeves’ Budget

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Confidence in the UK economy among manufacturers fell at its steepest rate since the start of the Covid-19 pandemic after Rachel Reeves’ tax hikes, another setback for the chancellor.

Manufacturer confidence fell to 5.8 from 6.8 in the latest quarter, the biggest quarterly drop since spring 2020, according to a survey by trade group Make UK and business consultancy BDO.

The Budget brought an earlier improvement in UK manufacturing sentiment to a “shuddering halt”, according to Make UK, which rates views of economic conditions over the coming year on a scale of 1 to 10.

“Having faced rising costs for most of the year, manufacturers are now facing a spending crisis that has seen their confidence plummet,” said Faheen Khan, senior economist at Make UK.

“While overall conditions had started to improve gradually during the year, the Budget brought this to a screeching halt with a significant rise in national insurance premiums which could break the camel’s back for some,” he added.

Let the UK now forecast UK manufacturing output to contract by 0.2 per cent in 2024, down from a forecast of 0.5 per cent expansion in the previous quarter, before rising by 0.7 per cent in 2025.

The forecast came despite some positive news from a survey of more than 300 businesses in November on improved output, overall orders and collection intentions and steady investment intentions.

Figures released on Monday suggested that the Labor government’s £25bn rise in employers’ national insurance premiums had hit business morale just as the UK economy showed signs of slowing.

Reeves was dealt a blow last week when official data showed the economy shrank 0.1 percent in October, the second straight monthly decline.The government’s stated priority is faster growth.

UK GDP growth was just 0.1 percent in the third quarter, slowing from 0.5 percent in the three months to June, and the S&P Global Purchasing Managers Index, which measures the health of the private sector, fell to a one-year low in November. level.

The GDP data was mostly collected ahead of Reeves’ budget on October 30, which saw a total of £40 billion in taxes rise.The Conservatives said the tax hike and Mr Reeves’ dour rhetoric had undermined business confidence.

The data complicated the picture for Bank of England rate-setters ahead of Thursday’s monetary policy announcement as they consider how quickly to cut rates.

Markets expect rates to remain unchanged at 4.75 percent after cuts in November and August.

The Bank is balancing subdued economic activity, which will support a faster pace of borrowing cost reductions, against sustained price pressures and heightened uncertainty, which support a more cautious approach.

Economists polled by Reuters expect UK services inflation, a key gauge of domestic price pressures, to rise to 5.1 percent in November when data are released on Wednesday.

That would be up from October’s 5 percent and well above the BoE’s 2 percent inflation target.

“The recent weakness in activity is unlikely to be enough to cut again at the December meeting,” said Gabriela Dickens, economist at Axa Investment Managers.

But he added: “The risks associated with the ‘gradual’ pace of cuts recently proposed by policymakers are increasingly to the downside.”

Other central banks have moved faster to lower borrowing costs: The Bank of Canada cut interest rates by a hefty half a percentage point in December, the European Central Bank cut borrowing costs for the fourth time this year, and the Federal Reserve is expected to cut its target Fed Funds rate by a quarter of a percentage point. dot wednesday