Britain’s factories have fallen behind eurozone counterparts for the first time in 19 months as Rachel Reeves’s tax grab hammers demand and triggers a wave of job cuts.
Activity in the manufacturing industry fell at its sharpest pace in 14 months, according to S&P Global’s purchasing managers’ index (PMI), a survey of businesses.
The PMI fell to 46.9 in February, down from 48.3 in January and so further below the 50 level that divides growth from contraction.
It means manufacturing in Britain is contracting even more quickly than in the eurozone, with its score of 47.6, for the first time since Aug 2023.
Only Germany, in its deep manufacturing recession, and France are performing worse among the nations tracked by the index.
Rob Dobson, at S&P Global Market Intelligence, said: “Weak demand, low client confidence and rising cost pressures are accelerating the downturns in output and new orders, while the autumn Budget’s changes to the national minimum wage and employer NICs [National Insurance contributions] are driving up inflation fears and intensifying the downward trend in staff headcounts.
“The pace of manufacturing job losses is currently running at a rate not seen since the pandemic months of mid-2020.
“Cost and demand considerations also encouraged cutbacks to purchasing activity and stocks, as the tough economic backdrop placed manufacturers on an increasingly defensive footing.”
Andrew Griffith, the shadow business secretary, said the manufacturing industry’s performance was the fault of the Chancellor’s record £40bn tax-raising Budget.
He added: “With orders down, costs up, jobs lost and growth stalling, businesses know that everything is getting worse because of Labour’s economically illiterate decisions.
“Labour have no experience in business and it shows. They don’t understand that businesses create growth in our economy, not the Government – and saddling firms with increased regulation, punitive taxes and higher costs will make everyone worse off.”
Separately on Monday, data showed British households ramped up borrowing at the beginning of the year.
Net mortgage lending rose by £4.2bn in January compared with December, according to the Bank of England, the sharpest increase since Sep 2022, just before Liz Truss’s disastrous mini-Budget sent borrowing costs spiralling.
Lower interest rates have encouraged buyers into the housing market, while those moving home are also keen to complete their transactions before the stamp duty threshold falls back from £250,000 to £125,000.
Matt Swannell, chief economic adviser to the EY Item Club, said it had resulted in a mini-surge in lending.
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“In recent months, mortgage demand has been boosted by buyers attempting to complete before the temporary increase in stamp duty thresholds expires at the end of March. But given the amount of time it takes to complete a purchase, we think the impact of this effect has already started to fade,” he said.
Credit card debt hit £72.7bn, rising to pre-Covid levels for the first time since the pandemic lockdowns.
Thomas Pugh, an economist at RSM UK, said the increase “suggests consumers are becoming more confident in spending”.
He added: “The resilience in mortgage approvals suggests something similar. But the big increase in cash in households bank accounts also suggests that consumers aren’t done saving yet.
“Until there is a revival in animal spirits and consumers feel confident enough to spend rather than save, the economy will continue to underperform.”
