U.K. private sector output unexpectedly declined for the second consecutive month in December as manufacturing production registered its steepest fall since July 2012, sparking fears about a slight economic contraction in the fourth quarter, purchasing managers' index data from IHS Markit and the Chartered Institute of Procurement & Supply showed.
The U.K. flash Composite Output Index, a weighted average of manufacturing output and services business activity data, fell to 48.5 in December from 49.3 in November, marking the fastest pace of decline since July 2016. A reading below 50.0 indicates contraction. The consensus estimate of economists polled by Econoday was for a reading of 49.8 in December.
Businesses attributed the decline in business activity to subdued global economic conditions and uncertainty about domestic politics and Brexit.
The U.K. Conservative Party won its largest majority since 1987 in the Dec. 12 snap election, paving the way for Prime Minister Boris Johnson to get his Brexit deal ratified in Parliament. While that brings certainty for Brexit, some uncertainty is expected to remain as the two sides engage in talks about their future relationship.
"The latest decline was the second-largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter," said Chris Williamson, chief business economist at IHS Markit.
Manufacturing output slumped to 45.8 in December from 49.1 in November.
The seasonally adjusted manufacturing index declined to 47.4 from 48.9 amid a faster reduction in new orders, marking the sharpest downturn in overall business conditions since August. The consensus estimate of economists polled by Econoday was for a reading of 49.4 in December.
Purchasing activity declined at its fastest pace since April 2009, with the fall attributed to low sales and planned inventory reduction.
Meanwhile, the services sector unexpectedly fell, at the fastest pace since March. The seasonally adjusted flash U.K. Services Business Activity Index edged down to 49.0 in December from November's 49.3, remaining below the 50.0 mark for the second consecutive month. New business volumes stabilized following three months of reduction.
The consensus estimate for services was for a rise to 49.6.