Michelle ThompsonFrance, Germany, and Austria are facing significant challenges, with British manufacturers reducing both jobs and investments.
European manufacturers experienced a drop in demand last month, showing “no sign of recovery,” while UK factory owners also reported a slowdown in orders.
The S&P Global Purchasing Managers’ Index (PMI) revealed that manufacturers in the eurozone faced declining demand in November, with France, Germany, and Austria being particularly affected. The eurozone PMI dropped to 45.2 from 46 in October, and France’s PMI fell to 43.1, down from 44.5 the previous month. A PMI below 50 indicates contraction. In the UK, factory owners reduced jobs and investments in November as output fell for the first time in seven months.
The UK PMI dropped to a nine-month low of 48 in November, from 49.9 in October, and below the flash estimate of 48.6 from the previous month.
Adding to Rachel Reeves’s push for stronger economic growth, UK manufacturers reported declines in both exports and domestic orders, with a bleak outlook for the sector. Brexit-related border checks continued to affect exports, while Reeves’s first budget as chancellor, which was not well received, dampened investment prospects. New orders fell at the fastest rate since February, according to S&P Global.
In the eurozone, Germany saw the steepest drop in output, while Italy’s factory sector contracted at the fastest rate in a year, and France recorded the largest decline in 10 months.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, remarked that the eurozone’s manufacturing recession seemed endless, with new orders dropping sharply and no signs of recovery.
Analysts noted that UK factories were struggling due to both domestic challenges, like rising staffing costs from Labour’s budget, and international issues such as port delays in the US and supply disruptions in the Middle East.
Reeves’s budget raised national insurance for employers and increased the national minimum wage, putting more financial pressure on manufacturers at a tough time. Analysts pointed out that the budget’s impact on labor costs, combined with geopolitical tensions, has left manufacturers facing high costs, low demand, and uncertainty.
Rob Dobson, Director at S&P Global Market Intelligence, explained that factors like the Middle East conflict, port disruptions, and stricter border regulations have driven up the cost of components and raw materials. With the looming rise in labor costs and heightened geopolitical risks, manufacturers are facing a challenging environment.
Chris Barlow, Head of Manufacturing at MHA, described the situation as a “perfect storm,” with factors such as the budget fallout, weak economic outlooks for the UK and EU in 2025, and the potential for new US tariffs.
Business confidence has dropped following the budget, according to the CBI and Institute of Directors. Dobson added that the export climate remains difficult, with weak demand from the US, China, and the EU contributing to a further decline in new business.
Brexit delays at UK ports have hit smaller businesses hard, with many UK clients seeking goods from within the eurozone due to difficulties complying with new regulations.
In France, political unrest was cited as a factor in the 22nd consecutive month of decline, with a decrease in new work from both domestic and international clients. German manufacturers also struggled to secure orders within the eurozone, and political uncertainty in Germany, following the collapse of the coalition led by Olaf Scholz, further weakened business confidence.
