The latest IHS
Markit / CIPS Flash UK Composite PMI data revealed a decline in private sector
output for the second month running in December.
At 48.5, down from
49.3 in November, the seasonally adjusted IHS Markit / CIPS Flash UK Composite
Output Index – which is based on approximately 85% of usual monthly replies –
pointed to a modest reduction in overall business activity.
Moreover, the rate
of decline was the fastest recorded since July 2016. December data pointed to
lower volumes of service sector output and a much sharper drop in manufacturing
production, with the latter falling to the greatest extent for almost seven-and-a-half
years. Survey respondents
overwhelmingly attributed lower business activity to a combination of domestic
political uncertainty, a lack of clarity in relation to Brexit and subdued
global economic conditions.
Manufacturers noted
that efforts to trim their stocks of finished goods had acted as an additional
brake on production at the end of 2019.Private sector employment decreased for
the fourth consecutive month in December, which was often linked to subdued order
books and delays to decision making in the lead up to the general election. A
sustained fall in new business intakes resulted in the sharpest reduction in
backlogs of work since July 2016. Meanwhile, input price inflation remained
lower than seen in the first half of the year. Softer cost pressures and
intense competition for new work contributed to the slowest rise in prices
charged by private sector firms since April 2016.
Faster reductions
in manufacturing output and new orders were the main factors weighing on the
headline PMI in December. The latest fall in production volumes was the
steepest since July 2012 and incoming new work has decreased in each month
since May.
Survey respondents
often attributed subdued demand to weaker export sales and customer destocking
in December, alongside delays to spending decisions ahead of the general
election. December data indicated a steep and accelerated fall in input buying
across the manufacturing sector. The latest decline in purchasing activity was
the fastest since April 2009, which was linked to fewer sales and planned
inventory reduction. Both stocks of purchases and post-production inventories
decreased in the latest survey period.
Chris
Williamson, Chief Business Economist at IHS Markit, said: “December’s PMI survey data sadly lacked festive
cheer, indicating that the economy contracted for the third time in the past
four months.
"The latest
decline was the second-largest recorded over the past decade, and increases the
likelihood that the economy contracted slightly in the fourth quarter as
Brexit-related uncertainty intensified in the lead up to the general election.
"New orders
fell for a fifth straight month, causing jobs to be cut for a fourth successive
month as firms scaled back operating capacity in line with weakened demand.
"The principal drag on order books was falling export sales, with overseas
demand for UK-produced goods and services slumping in the past two months to an
extent not seen since at least 2014.
"Manufacturing
production is falling at a rate exceeded only once since the height of the
global financial crisis in early-2009, but output of the vast service sector
has now also fallen in each of the past two months, representing the first
back-to-back declines since 2009.
"Any positive
aspects of the survey came largely from the sentiment indicators, with future
expectations rising to the highest since June as firms hope that the election
will bring clarity on the outlook and remove some of the uncertainty that has been
holding back demand."
