Worst U.K. Manufacturing in Seven Years Tests Johnson Pledges
Factory Woe Puts U.K. Economy on Brink of Contraction, PMI Shows
(Bloomberg) -- U.K. manufacturing production suffered its worst month in more than seven years in December, increasing the chances that the economy as a whole will contract this quarter.
The disappointing survey may reflect some nervousness in the run-up to last week’s U.K. election. Prime Minister Boris Johnson’s decisive victory in the vote removes some near-term concerns, though a myriad of questions remain over the U.K.’s future relationship with the European Union. If that undermines growth, that could impact Johnson’s plans to both increase spending and keep control of the deficit.
A flash indicator for all business activity dropped to the lowest since the aftermath of the 2016 referendum, IHS Markit said Monday. Its measure of factory output slipped more than forecast to 47.4, moving further below the 50 mark that indicates falling output.
“Brexit-related uncertainty intensified in the lead up to the general election,” said Chris Williamson, chief business economist at IHS Markit. “Firms hope that the election will bring clarity.”
Any certainty on the outlook will help both consumer spending and investment in 2020, while the government’s fiscal plans will add to support. According to a survey of economists before the election, growth next year is forecast to slow to 1% from 1.3%.
In December, the headline factory PMI slipped to a four-month low, while services, the largest part of the U.K. economy, shrank the most in nine months. There was better news in services new business, which stabilized.
What Bloomberg’s Economists Say...
“The dire reading of the composite PMI in December can probably be blamed on the intense uncertainty created by the Dec. 12 general election. We forecast the economy will expand modestly in the fourth quarter. With growth set to accelerate next year, we expect the current quarter to mark a low point for the survey.”
--Dan Hanson. Read the full INSIGHT
The PMI survey is the first part of a slew of economic economic numbers due out this week, including inflation, jobs, retail sales and growth. Bank of England Governor Mark Carney is due to speak later on Monday, and policy makers announce their decision on interest rates Thursday.
To contact the reporter on this story: Jill Ward in London at jward98@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson
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