UK manufacturing activity continued to decline in January, with output, new orders, and employment all falling, according to the latest S&P Global Purchasing Managers' Index (PMI).

The index remained below the neutral 50-mark for the fourth consecutive month, indicating ongoing contraction.

The index slightly improved to 48.3 in January from 47.0 in December, just above the preliminary estimate of 48.2. This marks the continued strain on British factories, with companies facing higher operational costs, including increased raw material and transportation costs.

The sector also saw the strongest price inflation in two years.

Employment levels fell, with smaller firms experiencing the most significant drops in output, orders, and staffing.

The PMI survey highlighted growing concerns about inflationary pressures, particularly ahead of April's payroll tax and minimum wage hikes.

The Bank of England (BoE) is expected to lower its growth forecast for 2025 and cut its Bank Rate to 4.5% from 4.75%.

However, this could present challenges in balancing the need for rate cuts to support economic growth against the risk of exacerbating inflation.

Despite a slight improvement in business confidence from December's two-year low, the outlook remains uncertain as the economy stagnates.

The PMI survey noted that Britain's economy has seen little growth since July 2024, with many businesses citing concerns about the government's fiscal policies, including plans for increased social security contributions.

Finance Minister Rachel Reeves has introduced proposals for boosting economic growth, including measures aimed at expediting planning decisions and supporting Heathrow Airport expansion.

However, these initiatives are not expected to have an immediate impact.

The final PMI for the much larger services sector will be released on Wednesday.