UK factories take fright as budget adds to cost pressures, survey shows

LONDON (Reuters) - British manufacturers have reported the sharpest loss of confidence since the start of the COVID-19 pandemic in the face of higher costs including tax increases by the new government, a group representing the sector said on Monday.

Make UK said its gauge of manufacturers' confidence about the economic outlook over the next 12 months in its quarterly outlook survey dropped to 5.8 in the fourth quarter of 2024 from 6.8 three months earlier.

The group cut its forecast for manufacturing output in 2024 which it now expected to shrink by 0.2% this year, down from a previous forecast of 0.5% growth. The sector was likely to expand by 0.7% in 2025, half the rate of the broader economy, it predicted.

Output and orders were positive while recruitment and investment intentions remained stable, Make UK said. But the mood among manufacturers worsened from the previous survey when almost six in 10 companies were upbeat about the outlook.

"Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence," Fhaheen Khan, senior economist at Make UK, said.

British finance minister Rachel Reeves announced in her Oct. 30 budget a 25 billion pound ($32 billion) increase in social security contributions paid by employers which will take effect from April, which is also when the minimum wage is due to rise by almost 7%.

Other recently published surveys have shown a drop in hiring intentions by employers following the budget.

Official data published on Friday showed Britain's economy shrank in both September and October in the run-up to the announcement by Reeves of her tax and spending plans - the first back to back declines in gross domestic product since 2020.

The survey of 303 companies was carried out between Oct. 28 and Nov. 27.

($1 = 0.7923 pounds)

(Writing by William Schomberg; editing by David Milliken)