The closely monitored Markit/Cips services purchasing managers’ index (PMI), in which anything below 50 is seen as a contraction, recorded a score of 47.5 in December.
This marks the eighth successive month of missing the neutral mark, as manufacturers reported that ongoing concerns relating to the economic, global trade and political outlooks were weighing on activity and hampering investment.
Production fell in response to declining intakes of new orders from both domestic and overseas clients, while efforts to reduce Brexit safety stocks also stymied output volumes.
Employment levels declined for the ninth successive month in December, as small firms and large companies across all sectors registered job losses.
There was a slight uptick in consumer goods production, but not enough to offset falls elsewhere.
Rob Dobson, director at IHS Markit, which compiles the survey, said: “New order inflows decreased and Brexit safety stocks were reduced. With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs cut for the ninth successive month.
“The downturn is still being hardest felt at companies reliant on investment and business-to-business spending.”
“On this basis, it looks like UK manufacturing and the broader economy may both start the new decade as they began the last, too reliant on consumer spending and still waiting for a sustained improvement in investment levels.”
Despite the declines, the survey, which was carried out between 5 and 18 December, found that business confidence remained positive, as more than 43 per cent of companies forecast output to be higher in a year compared with today, while just one in ten predicted a contraction.
This optimism was put down to reduced uncertainty from the general election, new product launches and improved client confidence, however, the confidence levels remained historically low.
Howard Archer, chief economic advisor to the EY Item Club, added: “Output contracted for an eighth month running in December, and at the fastest rate for 89 months. Manufacturing output was held back by producers looking to reduce their stocks of finished goods, which had been built up ahead of the UK’s scheduled exit from the EU on 31 October.
“It highlights that the manufacturing sector continues to struggle with both domestic and foreign demand under pressure.
“Marginal expansion was reported in output in the consumer goods sector, highlighting the importance of consumer spending to growth prospects.”