Factories, ships and elections

Output from British factories fell by more than expected in December after a drop in orders from both domestic and export clients, according to the latest results from the S&P Global survey and the Chartered Institute of Procurement and Supply.

The survey of approximately 650 manufacturers, which feeds into the decision making at the Bank of England, told how company bosses said a worsening economic backdrop, clients delaying orders and poor weather conditions had contributed to the latest decline.

The reading on the S&P Global/CIPS manufacturing purchasing managers index fell to 46.2 in December, ending a succession of three months of improvement and down from a seven-month high of 47.2 in November.  A score of 50 on the survey is the divide between growth and contraction, and the score has been below 50 for 17 consecutive months.

Rob Dobson, the director at S&P Global Market Intelligence, used his best seasonal pun to say demand in the manufacturing sector remained “frosty” at the end of 2023. He continued, “the downturn has hit manufacturers’ confidence, which dipped to its lowest level in a year, and encouraged renewed cost caution with further cuts to stock levels, purchasing and employment. With concerns about high interest rates and the cost of living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy.”

In more grim news for British businesses and consumers, the British Retail Consortium is warning that the disruption caused by Red Sea attacks on shipping could have a knock-on effect on product availability and prices with some vessels being diverted around the Cape of Good Hope.  This route adds 3,500 nautical miles and around 10 days to the journey, as well as extra fuel, staff and insurance costs.

The German shipping giant Hapag-Lloyd told the BBC it would continue to avoid the Red Sea route until at least 9 January.  It sends an average of 50 ships a month through the Suez Canal, a major part of the Red Sea route.  Some 25 of their ships were diverted in the last half of December and around 20 more will be impacted this month.  In addition, Mediterranean Shipping Company and Maersk have also stopped using the shorter route and French company CMA-CGM is increasing its rates between Asia and Europe.

These numbers are leading to predictions the Bank of England will need to undergo significant interest rate cuts.  Financial markets are pricing in as many as six interest rate cuts from the current level of 5.25% to about 3.75% by December.

The newsroom will be here to bring you the whole story during 2024, and we haven’t even mentioned the elections yet.  Indeed, with countries including the US, UK, India, Pakistan, Brazil and Russia (admittedly we could probably tell you who will win this one now) set to vote in 2024, over 40% of countries and over 1.5billion people are due to head to the polls, it is set to be a big year politically, which will no doubt impact on UK Plc.