The global slowdown hit Britain’s industrial sector at the end of last year, hurting factory output, mining and energy production.
A slump in the pharmaceutical industry made the biggest contribution to manufacturing’s worsening situation, leading to a decline of 0.4% in November 2015 from the previous month.
Analysts said the disappointing figures, which follow a similar contraction in October, would set the tone for a difficult 2016 that could knock George Osborne’s growth projections off course.
The chancellor is also likely to hear louder calls for the government to step in and support manufacturers who have seen exports suffer as China’s economy slows and the eurozone struggles to gain momentum.
Osborne warned last week that he feared the UK faced heightened risks from the shaky global economy, saying 2016 has opened with a “dangerous cocktail of new threats”.
Chris Williamson, chief economist at financial data provider Markit, said: “UK industry looks to have once again failed to grow in the closing quarter of last year, ending a tough year for manufacturers and energy companies.
“Clearly, the sector looks to have once again made no contribution to economic growth in the closing quarter of 2015, leaving the economy reliant on the services sector to sustain the upturn.”
Williamson said the weakness in part reflected the headwinds faced by North Sea oil producers as they adjust to lower prices and a drop in demand from the unusually warm weather. Brent crude, which was trading at more than $110 a barrel 20 months ago, dropped below $32 a barrel in early trading on Tuesday.
“However, manufacturers are also having a torrid time. Producers are having to deal with a toxic combination of a historically strong exchange rate, weak global demand, intensifying competition, notably from the US and continental Europe, as well as growing uncertainty about the outlook at home and abroad. None of these factors are like to disappear any time soon, leaving industry facing further hard times in 2016 and the economy worryingly unbalanced.”
The Office for National Statistics said the largest contribution to the decrease in manufacturing came from “basic pharmaceutical products & pharmaceutical preparations”, which decreased by 4.9%. Mining fell 0.2%, while the production of crude oil and natural gas dropped by 0.23%.
Overall, industrial production fell 0.7% from October to leave it only 0.9% higher than in November 2014. Over the same period, manufacturing output decreased by 1.2%.
Last week a survey by the British Chambers of Commerce found that manufacturing fared worse than the services sector and was “close to stagnation” after domestic and export sales fell to below their pre-recession levels in 2007.
The BCC said that without government action to improve workers’ skills, upgrade outdated infrastructure and allow small firms access to the same cheap credit available to major businesses, “the UK economy could suffer negative consequences in the face of increasing global uncertainty”.
Illustrating the difficult period faced by the manufacturing sector since the financial crisis, the ONS said that in the three months to November 2015, production and manufacturing were 9.1% and 6.1% respectively below their values reached in the pre-downturn GDP peak in the first quarter of 2008.
Until recently the pharmacuetical sector had proved to be a bright spot after a lacklustre recovery in 2012 and 2013. Its recent decline leaves only the aerospace industry and car making as the engines of expansion across manufacturing.
Figures last week showed that a total of 2.63m new cars hit the UK’s roads last year, an increase of 6.3% on 2014 and above the previous record of 2.58m, set in 2003.
The head of the Society of Motor Manufacturers and Traders (SMMT), which provided the figures, said the British market was in the midst of a remarkable period of growth.
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