UK factory output shrinks again at start of tough 2023 - PMI

© Reuters. FILE PHOTO: Workers stand on scaffolding at a residential building in London, Britain, March 7, 2016. REUTERS/Toby Melville/

LONDON (Reuters) - British manufacturers saw their business shrink for a sixth month in a row in January, kicking off a tough 2023 when the country's economy looks set to fall into a recession, according to a survey published on Wednesday.

The S&P Global/CIPS UK manufacturing Purchasing Managers' Index (PMI) rose to 47.0, up from a preliminary January reading of 46.7 and from a 31-month low of 45.3 in December but still below the 50.0 level that separates contraction from growth.

Output and new orders contracted and job losses were reported for the fourth month in a row.

Weak demand from clients at home and abroad plus strong price inflation and a shortage of raw materials and staff all weighed on production. Brexit and port problems hurt exports while demand from China was particularly weak, S&P Global (NYSE:SPGI) said.

However, there were signs that the worst of the inflation surge has passed with cost increases slowing. Pressures on supply chains lessened and optimism rose to its highest level since April 2022.

Almost 57% of manufacturers reported that output would be higher one year from now.

The Bank of England is weighing up how much higher it should raise interest rates to stamp out the risks that inflation, currently above 10%, gets stuck above its 2% target. It is expected to raise Bank Rate on Thursday to 4% from 3.5%.

But the BoE must also avoid putting too much strain on the economy which the International Monetary Fund expects to be the only one in the Group of Seven rich nations to shrink this year.

Finance minister Jeremy Hunt plans to announce measures to increase growth in his March 15 budget statement but he has ruled out significant tax cuts for now.

A final PMI survey of Britain's dominant services sector is due to be published on Friday.