Pound drops as winter chill hits manufacturing after Labour’s doom and gloom Budget

The pound hit its lowest level against the US dollar for nearly nine months yesterday as figures showed a ‘winter chill’ descending on UK manufacturers after Labour’s Budget.

Sterling fell more than a cent to less than $1.24, its lowest since April 23, as purchasing managers’ index (PMI) data showed the sector shrinking at its fastest pace in 11 months.

Confidence has plunged to its worst in two years after Rachel Reeves’ gloomy rhetoric about the economy and her £25billion raid on employer National Insurance (NI) Contributions.

Firms are now scrambling to cut back on staff costs as they prepare for the NI hike – which sharply increases the cost of employing staff – in April.

The December PMI reading for the sector fell to an 11-month low of 47, down from 48 in November, on a scale where 50 separates growth from contraction. 

Rob Dobson, director at S&P Global market intelligence, which compiled the report, said firms were facing an ‘increasingly downbeat backdrop’ and higher costs for UK factories and their clients.

Manufacturing slump: Sterling fell more than a cent to less than $1.24 its lowest since April 23, as PMI data showed the sector shrinking at its fastest pace in 11 months

Smaller firms have been ‘especially hard-hit during the latest downturn,’ he added. 

‘This is sending a winter chill through the labour market.’ The survey showed firms cutting staff levels at the sharpest pace since February.

Dobson said: ‘Some are acting now to restructure operations in the advance of the rises in employer National Insurance and minimum wage levels in 2025.’ 

He said that global market conditions were also taking a toll, with exports hit by lower demand from Europe, Asia and the US.

It is the latest dismal economic reading for the UK after Labour took office.

Latest official figures show Britain achieved zero growth in the third quarter of 2024. And the Bank of England has predicted another period of stagnation for the fourth quarter.

Lee Hardman, currency analyst at MUFG, said if there were further signs of weakening ‘and the Bank started to make noises about potentially being more active in terms of cutting rates in response’, that could add to pressure on the pound.