UK manufacturing sector returns to growth despite budget uncertainty
Happier news: The UK’s factory sector returned to growth last month for the first time in over a year.
The latest poll of UK purchasing managers across manufacturers shows that output across the sector rose last month, and that business optimism hit a nine-month high.
This pushed up the S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) to a 14-month high of 50.2 in November, up from 49.7 in October. This is the first time since September 2024 that the PMI, which tracks activity in the sector, has come in above the 50-point mark that shows stagnation.
Rob Dobson, director at S&P Global Market Intelligence, says:
The numbers are especially encouraging as this improvement occurred despite November seeing elevated levels of business uncertainty, and in some cases an element of gloom, ahead of the Autumn Budget. “The lifting of this uncertainty caused by the long lead-in to the Chancellor’s budget announcement should hopefully provide a boost in December, but it will be interesting to see the extent to which business might react to the absence of any significant growth-promoting measures. After all, despite the improvement in the performance of the manufacturing sector, any growth is still worryingly weak.
Rising competitive pressures and slower cost inflation meanwhile led to factory gate prices being cut for the first time in over two years. This combination of soft industrial performance and subsiding price pressures will add to the shift in policy debate away from inflation fears towards supporting economic growth.”
Key events
UK mortgage approvals dip
Britain’s property sector did not shrug off budget uncertainty as well as the factory sector, it appears.
New Bank of England data shows that mortgage demand cooled in October.
There was a 600 drop in net mortgage approvals for house purchase in October, to around 65,000, the BoE reports. Approvals for remortgaging fell by 3,600 to 33,100, the lowest since February 2025.
Net borrowing of mortgage debt by individuals fell back to £4.3bn in October, after a rise to £5.2bn in September.
The BoE also reports that the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages dipped to 4.17% in October, down from 4.19% in September. That’s the lowest since January 2023.
This morning’s report also shows that UK companies paid down some debts in October.
Private non-financial corporations repaid, on net, £4.8bn of finance during the month, the highest level of net repayments since October 2023.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, says:
“The drop in consumer credit growth, mortgage approvals and net finance raised by private corporations suggests that households and firms were easing back on borrowing and major transactions ahead of last week’s budget. This will probably have been even worse in November as speculation reached fever pitch, but given the lack of any significant tax increases next year activity may bounce back in December and into next year.
“The drop in consumer credit growth to £1.1bn, down from £1.4bn in September and well below the £1.5bn six-month average was mainly driven by a drop in other loans, which would be consistent with households holding off from making major purchases ahead of the budget. However, the smaller increase in households saving balance suggests they weren’t rushing to hoard cash.
“What’s more, the drop in mortgage approvals to 65,018 is consistent with the recent weakness in house prices reported in a number of surveys. Now that there is some certainty around property taxes and interest rates are likely to be cut again in December, the housing market should pick up. But given the budget will boost demand slightly next rather than subtracting from it, the Bank of England is unlikely to cut rates significantly further or faster than priced in.
UK manufacturing sector returns to growth despite budget uncertainty
Happier news: The UK’s factory sector returned to growth last month for the first time in over a year.
The latest poll of UK purchasing managers across manufacturers shows that output across the sector rose last month, and that business optimism hit a nine-month high.
This pushed up the S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) to a 14-month high of 50.2 in November, up from 49.7 in October. This is the first time since September 2024 that the PMI, which tracks activity in the sector, has come in above the 50-point mark that shows stagnation.
Rob Dobson, director at S&P Global Market Intelligence, says:
The numbers are especially encouraging as this improvement occurred despite November seeing elevated levels of business uncertainty, and in some cases an element of gloom, ahead of the Autumn Budget. “The lifting of this uncertainty caused by the long lead-in to the Chancellor’s budget announcement should hopefully provide a boost in December, but it will be interesting to see the extent to which business might react to the absence of any significant growth-promoting measures. After all, despite the improvement in the performance of the manufacturing sector, any growth is still worryingly weak.
Rising competitive pressures and slower cost inflation meanwhile led to factory gate prices being cut for the first time in over two years. This combination of soft industrial performance and subsiding price pressures will add to the shift in policy debate away from inflation fears towards supporting economic growth.”
Manufacturing activity across the eurozone has slipped back into contraction territory last month, as demand weakened and firms cut staff.
The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 49.6 in November from 50.0 in October. That’s a five-month low, and shows a small contraction.
Most Airbus A320 planes have received crucial software update
Airbus staff have been working hard over the weekend to fix a software problem that affected thousands of its planes.
The glitch, revealed late on Friday, required an urgent system update on Airbus’s most widely-flown jet to ensure safe use of flight inputs.
And this morning, Airbus said the vast majority of around 6,000 A320-family aircraft have received the necessary modification, with fewer than 100 still to be fixed.
UK budget airline easyJet told the City this morning that it had completed the required software updates on all operational aircraft requiring the update over the weekend, and maintained its flying programme during the operation.
WizzAir also carried out the mandatory maintenance with zero flight cancellations, having identified 83 operational aircraft within its fleet which required immediate software amendment.
UK borrowing costs inch up a little
There’s a small increase in UK government borrowing costs this morning, as investors digest the row over Rachel Reeves’s comments in the run-up to the budget.
UK gilt prices have dropped slightly this morning, which nudges up the yield, or interest rate, on the bonds to the highest levels since Budget Day last Wednesday.
It’s a small move, though, and broadly in line with other bond market moves.
The yield, or interest rate, on UK 10-year gilts is up 2.6 basis points (0.026 percentage points) to 4.475% this morning. US 10-year bonds, as a comparison, are up 2.3 basis points.
UK 30-year gilt yields are up 4 basis points, again slightly more than the US equivalent.
As well as Reeves’s denial that she lied to the public in the buildup to last week’s budget, traders will also be watching a speech from prime minister Keir Starmet later today, where he’ll outline plans for a multiyear economic plan based around deregulation, further welfare reform and closer European ties.
The pound is weakening a little this morning.
Sterling has lost 0.2% against the euro, to €1.138. Against the dollar, it has lost almost a third of a cent to $1.321.
Alexander Wheeler, analyst at RBC, had correctly predicted the market reaction to the collapse of the £5.3bn infrastructure merger, telling clients:
HICL and TRIG have announced the proposed combination of the two funds will not be pursued following broad engagement with HICL shareholders which means it no longer expects the transaction to achieve sufficient shareholder approval.
We think a larger, higher-return combined vehicle had merits but the pricing of the deal on a NAV-NAV basis despite a c.11% delta in the funds’ share price discounts to NAVs had been a key focus for HICL shareholders.
We would expect this announcement to be positive for HICL shares and negative for TRIG shares this morning.
The stock market is open, and investors are giving their verdict on the collapse of the HICL/Trig merger.
Shareas in HICL have jumped 4.2%, putting them on the top of the FTSE 250 index of medium-sized companies.
But Trig are the worst-performing FTSE 250 member – its shares are down 4.9%.
Oil price up 2% after Opec+ decision and Ukraine attacks
The oil price has jumped this morning, after the Opec+ cartel agreed to leave output unchanged and Ukraine attacked two Russian ‘shadow fleet’ tankers.
Brent crude is up around 2% this morning, hitting $63.82 per barrel for the first time since 20 November.
The rise comes after Opec+ decided to stick with their existing plans to pause production increases during the first quarter of 2026, amid growing signs of a glut in global oil markets.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains:
US crude is up more than 2% this morning as OPEC reiterated yesterday that they want to stabilise oil prices into next year, implying tighter control of output to address the supply glut that has weighed on prices – except during brief periods of geopolitical tension.
And even those tensions haven’t been enough lately to bring buyers back, which shows how much oil is currently sloshing around the planet. As discussed in previous reports, OPEC alone can’t reverse the broader negative price dynamic, but it can help put a floor under the latest selloff.
The attack by Ukrainian naval drones on two sanctioned tankers in the Black Sea could also indicate that supplies from Russia will be lower than expected, especially as the Caspian Pipeline Consortium, which handles more than 1% of global oil, halted operations last weekend after a mooring at Russia’s Black Sea terminal was significantly damaged by a Ukrainian naval drone attack.
China’s factory activity unexpectedly contracted last month, new data today shows, with demand remaining soft.
The RatingDog China General Manufacturing PMI, conducted by S&P Global, dropped to 49.9 in November, below analysts’ expectations of 50.5. That suggests a very small dip in activity.
“Manufacturing production growth came to a halt as new orders nearly stalled in November,” S&P Global and RatingDog said in a statement.
Yao Yu, founder of financial technology company RatingDog, added:
“Manufacturers reduced their workforce and purchasing volume, and became more cautious in inventory management.”
£5.3bn infrastructure merger collapses after investor revolt
Just in: A deal to create the largest listed UK infrastructure investment company has collapsed.
The propsed combination of two UK infrastructure investment companies, HICL Infrastructure and the Renewables Infrastructure Group Limited (TRIG), would have created a new investment trust worth £5.3bn. However, it has failed to win enough support following a revolt by investors in HICL, which had proposed the merger with fellow FTSE 250 member, TRIG.
In a statement this morning, the two companies say the proposed combination will not proceed, adding:
Both Boards remain convinced of the strategic rationale for the combination. However, following broad engagement with shareholders, the HICL Board determined that it cannot progress the transaction without a substantial majority of support from its own investors.
HICL’s investments are focused on infrastructure in hospitals, schools and transport, while Trig invests renewable energy sources such as wind farms, solar and battery plants.
A group of HICL investors had opposed the deal, claiming it had been priced and structured to favour Trig.
Trig’s board say they regret that investors won’t get to vote on the deal.
Richard Morse, chair of TRIG, says:
“Our focus now returns to delivering TRIG’s attractive standalone strategy. TRIG is a well-established platform with high quality assets, a competitive pipeline of opportunities, and deep renewables and energy storage expertise.
We are uniquely placed to capitalise on the demand growth for low carbon, reliable power and to capture the commercial opportunities as economies across the UK and Europe electrify and decarbonise. Doing so will allow us to deliver sustainable value and growth for our shareholders, with whom we will continue to engage on the path ahead.”
Introduction: UK economic growth forecast to slow next year as unemployment rises
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With the budget over, bar the inquest, attention is again turning to the health of the UK economy.
We’ll get a healthcheck on Britain’s manufacturing sector this morning, and an assessment of the mortgage and credit market but first, there are a flurry of economic surveys to digest.
KPMG have predicted that the UK economy will cool in 2026 as weak consumer sentiment and a slowing job market weighs on growth. They predict UK GDP will rise by 1.0% in 2026, down from 1.4% in 2025, with unemployment rising next year too.
That’s a weaker forecast than the Office for Budget Responsibility – which predicted last week that growth would fall to 1.4% in 2026 from 1.5% this year.
KPMG UK’s latest Economic Outlook also predicts the unemployment rate will rise to 5.2% in 2026, reflecting slower hiring, increasing participation and job cuts as companies look to automate some job fnctions.
Wage growth is expected to slow, falling towards 3% by mid-2026 – something that might encourage the Bank of England to lower interest rates.
Yael Selfin, chief economist at KPMG UK, said:
“The outlook for growth in 2026 is subdued, reflecting the impact of a cooling labour market and weak household spending. But there are pockets of strength emerging in the form of data infrastructure and green energy investment. The medium-term picture could improve further if planning reforms unlock housing delivery and uncertainty reduces for investors.
“With ongoing headwinds continuing to weigh on household activity, consumer spending is likely to remain subdued over the coming year. Although the Autumn Budget avoided front-loaded tax hikes, the decision to maintain frozen tax thresholds until 2031 means that fiscal drag will persist.”
The CBI also have downbeat news – they report that business sentiment and activity dropped further across the services sector in last three months.
The CBI’s latest Service Sector Survey found that business volumes dropped again, marking over a year of declines. Meanwhile, average selling prices were unchanged despite cost growth remaining elevated.
Looking ahead, service sector firms expect volumes to keep falling over the next quarter.
And to round off the gloom, the IoD Directors’ Economic Confidence Index has remained at a record low.
The index was unchanged at -73 in November, matching October’s reading, but did inch up to -72 immediately after the budget.
The agenda
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9am GMT: Eurozone manufacturing PMI report
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9.30am GMT: UK consumer credit and mortgage approvals
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9.30am GMT: UK manufacturing PMI report
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3pm GMT: US manufacturing PMI report