The pound is falling as winter chill hits manufacturing following the demise of the Labor budget

The pound hit its lowest level against the US dollar in almost nine months yesterday as figures showed a ‘winter chill’ descending on British manufacturers following the Labor budget.

Sterling fell more than a cent to below $1.24, its lowest level since April 23, after Purchasing Managers’ Index (PMI) data showed the sector shrank at its fastest pace in 11 months.

Confidence has fallen to its worst in two years following Rachel Reeves’ gloomy rhetoric on the economy and her £25 billion raid on employers’ National Insurance (NI) contributions.

Businesses are now trying to cut staff costs as they prepare for the NI increase – which will sharply increase the cost of hiring staff – in April.

The industry PMI reading in December fell to an 11-month low of 47, down from 48 in November, on a scale where 50 separates growth from contraction.

Rob Dobson, director of S&P Global market intelligence, which compiled the report, said companies were facing an “increasingly bleak environment” and higher costs for British factories and their customers.

Smaller businesses were “especially hard hit during the last recession,” he added.

‘This is causing a winter chill on the labor market.’ The survey found that companies have cut workforces at the sharpest pace since February.

Dobson said: ‘Some are now taking action to restructure their businesses ahead of national employer insurance and minimum wage increases in 2025.’

He said global market conditions were also taking their toll, with exports hit by lower demand from Europe, Asia and the US.

It is the latest bleak economic situation for Britain since Labor came to power.

The latest official figures show that Britain achieved zero growth in the third quarter of 2024. And the Bank of England has predicted a new period of stagnation for the fourth quarter.

Lee Hardman, currency analyst at MUFG, said if there were further signs of weakening “and the Bank started making noises about potentially being more active in terms of rate cuts in response”, it could add to pressure on the pound.