Shopping and manufacturing dips pile pressure on Rachel Reeves

Ms Reeves, the Chancellor, has repeatedly pledged that economic growth is the “number one mission” of the Government.

However she is already battling disappointing GDP performance, amid fears of a resurgence in inflation and a hit to jobs after Labour’s October 30 Budget announced steep increases in employers’ national insurance contributions and a minimum wage rise next year.

The S&P Global UK manufacturing PMI survey, watched closely by economists, recorded a reading of 47.0 in December, from 48.0 in November.

Any reading above 50 indicates activity is growing while any score below means it is contracting.

The rate of job cuts hit a 10-month high, the survey found, with firms saying weak market conditions caused many to reduce their headcounts.

Company confidence fell to a two-year low, meanwhile, amid concerns about inflationary pressures, rising business costs and potential weaker economic growth this year.

Manufacturers said they were concerned about future cost increases, partly driven by rising taxes announced by Ms Reeves last year.

Rob Dobson, director at S&P Global Market Intelligence, said: “Manufacturers are facing an increasingly downbeat backdrop.

“Business sentiment is now at its lowest for two years as the new Government’s rhetoric and announced policy changes dampen confidence and raise costs at UK factories and their clients alike.

“SMEs are being especially hard hit during the latest downturn.”

The BRC Sensormatic Footfall Monitor found shopper visits were down 2.5 per cent on 2023 in the run up to Christmas, and down 2.2 per cent on the previous year overall.

MRI Software’s recent Consumer Pulse report found 51 per cent of consumers were concerned about the rising cost of living over the next six months, driven by higher energy and housing costs during the winter.

Last week, separate figures from analysts Rendle Intelligence suggested this Christmas appeared to have been “disastrous” for retailers, with footfall down 11.4 per cent on last year over the final full week before Christmas.

Ms Reeves will also have to battle fears of “stagflation”, where the economy faces the twin threat of stagnating growth and rising inflation.

Laith Khalaf, head of investment analysis at AJ Bell, warned that “with the economy stalling, the watchword for 2025 is now stagflation”.

“Wherever you look, the green shoots of an inflation revival seem to be pushing up the turf,” he said.

“As inflationary forces gather, the Bank of England isn’t going to be gung-ho about cutting interest rates.”

But it may not be all doom and gloom for borrowers in 2025, with a worsening GDP outlook offering potential for borrowing costs to come down faster, according to economists.

Most experts are predicting three to four rate cuts in 2025, but with the full effect of the Budget measures still unclear and uncertainty over incoming US president Donald Trump’s trade tariff plans, the outlook for the economy is decidedly cloudy.

An HM Treasury spokesperson said: “We delivered a once-in-a-Parliament budget to wipe the slate clean and deliver the stability businesses so desperately need while not increasing taxes on working people.

“By bringing back political and financial stability, we are creating the conditions for economic growth through investment and reform.

“Capping the rate of corporation tax, establishing a National Wealth Fund and creating pension megafunds is just the start of our Plan for Change which will get Britain building, unlock investment and support business so we can make all parts of the country better off.”