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UK downturn moderates in December but factories struggle – PMI

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LONDON — The downturn across British businesses has eased slightly this month, apart from for manufacturers, and companies have reported the weakest cost pressures since mid-2021, a survey showed on Friday.

The UK S&P Global Composite Purchasing Managers’ Index (PMI) rose unexpectedly to 49.0 from 48.2 in November, although it remained below the 50 threshold denoting growth. A Reuters poll of economists had pointed to a reading of 48.0.

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The dominant services sector drove all the improvement as the decline deepened among British manufacturers, which cut jobs for the first time since October 2020.

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Overall the survey fitted with other signs that the economy is contracting at a slow pace that is not worsening, with price pressures easing further from historically high levels.

The survey came a day after Bank of England officials raised interest rates and indicated that more hikes were likely, despite a looming recession, as the central bank tries to bring down inflation that hit a 41-year high in October.

“The December data add to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September,” S&P Global chief business economist Chris Williamson said.

The composite PMI’s gauges of inflation for both businesses’ input cost and their selling prices fell to their lowest levels since mid-2021.

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The PMI for the services sector rose to 50.0, indicating stagnation, from 48.8 in November.

Factories, which account for less than 10% of economic output, fared worse. The manufacturing PMI slid to 44.7 from 46.5, marking its lowest level since May 2020 – during the depths of the first COVID-19 lockdown.

“It’s no surprise to see that businesses are battening down the hatches, most notably by reducing headcounts, in a sign that the downturn not only has further to run but could yet accelerate again, especially given December’s further hike to interest rates,” Williamson said. (Reporting by Andy Bruce; Editing by Hugh Lawson)

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