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In another blow to the chancellor, manufacturers' confidence in the UK economy fell after Rachel Reeves' tax-raising budget fell at the sharpest rate since the start of the Covid-19 pandemic.
Confidence fell to 5.8 in the final quarter from 6.8, the biggest quarter-on-quarter drop since spring 2020, according to a survey by Make UK and business consultancy firm BDO.
According to Make UK the Budget has brought the previous improvement in UK manufacturing sentiment to a "shuddering halt". The survey ranks views on the state of the economy over the next year on a scale of 1 to 10.
"After facing cost cuts for most of the year, manufacturers are now facing a cost crisis that has led to a sharp drop in confidence," said Faheen Khan, senior economist at Make UK.
"While overall conditions had begun to improve gradually during the year, the Budget has brought it to a screeching halt, with a significant increase in National Insurance contributions possibly the straw that could break the camel's back for some, " he added.
Make UK now forecasts that UK manufacturing output will contract by 0.2 per cent in 2024, down from a forecast of 0.5 per cent growth in the previous quarter, before rising by 0.7 per cent in 2025.
The forecast comes despite some positive news in November on improved output, total orders and hiring intentions and stable investment intentions in a survey of more than 300 businesses.
Figures released on Monday showed evidence that the Labor government's £25 billion increase in employer national insurance contributions has hit business morale 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 consecutive monthly contraction. The stated overriding mission of the government is rapid development.
UK GDP growth was just 0.1 per cent in the third quarter, down from 0.5 per cent in the three months since June. The S&P Global Purchasing Managers' Index, a measure of the health of the private sector, fell to a one-year low in November.
The GDP data was collected largely ahead of Reeves' October 30 Budget, which saw a total of £40bn in tax increases. Conservatives said the tax hike and Reeves' dovish rhetoric had undermined business confidence.
In response to the manufacturing survey, the government said its "next year's industrial strategy will also focus on the key sector of advanced manufacturing, providing certainty and stability to companies".
GDP data complicated the picture for rate-setters at the Bank of England ahead of Thursday's monetary policy announcement as they consider how soon to cut interest rates.
Markets expect interest rates to remain unchanged at 4.75 percent after cuts in November and August.
The Bank is balancing weak economic activity, which will support a faster pace in reducing borrowing costs, against continued price pressures and high uncertainty, which supports a more cautious approach.
Economists polled by Reuters expect UK services inflation, a key indicator of domestic price pressures, to accelerate to 5.1 percent in November when data is published on Wednesday.
That would be above 5 percent in October and well above the rate consistent with the BoE's 2 percent inflation target.
"The recent weakness in activity is unlikely to be enough to cut it again at its December meeting," said Gabriella Dickens, economist at AXA Investment Managers.
But he added: "The risks to the 'slow' pace of cuts set by policymakers recently are always tilted to the downside."
Other central banks have moved quickly to reduce borrowing costs. In December, the Bank of Canada cut interest rates by a whopping half a percentage point, the European Central Bank cut borrowing costs for the fourth time this year and the Federal Reserve cut its fed funds target rate by a quarter of a percentage point. Expected to reduce Point on Wednesday.