The downturn across most British businesses eased slightly this month but manufacturers struggled and the economy is still likely to contract this quarter, marking a recession, a survey showed on Friday.

The UK S&P Global Composite Purchasing Managers’ Index (PMI) rose unexpectedly to 49.0 from 48.2 in November, although it remained below the 50 threshold for growth. A Reuters poll of economists had pointed to a slight fall to 48.0.

The dominant services sector drove all the improvement as the decline deepened among British manufacturers, which cut jobs for the first time since October 2020.

The survey echoed other signs that the economy is contracting at a slow pace that is not worsening, with price pressures easing further from historically high levels.

Separate data on Friday showed a surprise fall in retail sales in November, while consumer confidence remained close to all-time lows this month.

“The releases still point to the UK being in a shallow, but protracted, recession at the end of 2022 and into 2023,” said Daniel Mahoney, UK economist at Handelsbanken.

Composite PMIs from other European countries painted a similar picture, although Britain’s reading bettered those of France and Germany for the first time since July.

It came a day after Bank of England officials raised interest rates and indicated that more hikes were likely, despite a looming recession, as the central bank tries to bring down inflation that hit a 41-year high in October.

However, investors took the message from the BoE to be that it might be approaching the end of its rate hikes.

S&P Global said the PMI was consistent with a roughly 0.3% drop in economic output in the fourth quarter. On Thursday, the BoE said it expected a smaller 0.1% fall in the period.

The economy shrank by 0.2% in the July-September period, according to official data.

The composite PMI’s gauges of inflation for both businesses’ input cost and their selling prices fell to their lowest levels since mid-2021.

The PMI for the services sector rose to 50.0, indicating stagnation, from 48.8 in November.

Factories, which account for less than 10% of Britain’s economic output, fared worse. The manufacturing PMI slid to 44.7 from 46.5, marking its lowest level since May 2020 - during the depths of the first COVID-19 lockdown. “It’s no surprise to see that businesses are battening down the hatches, most notably by reducing headcounts, in a sign that the downturn not only has further to run but could yet accelerate again, especially given December’s further hike to interest rates,” S&P Global Chief Business Economist Chris Williamson said.

Meanwhile, UK’s main stock indexes slumped on Friday as major central banks stuck to their hawkish stance on interest rates while lacklustre British economic data also heightened concerns about a looming recession.

The blue-chip FTSE 100 fell 0.5% to an over three-week low while the mid-cap FTSE 250 shed 1.4% by 1005 GMT.

The past week saw the European Union, the US and the UK central banks hike rates, as expected, and pledge to continue raising rates further to bring runaway inflation under control.

UK retail sales dropped by 0.4% in November, compared with a 0.3% rise in the prior month, highlighting the stress felt by households as a cost-of-living crisis squeezed their finances.

Retailers, which dropped 1% on Friday, are among sectors that have taken the worst hit this year in the FTSE 100, declining about 35% year-to-date.

“Retail sales fell overall in November, driven by a notable drop for online retailers, with Black Friday offers failing to provide their usual lift in this sector,” said Darren Morgan, ONS director of economic statistics.

“However, department stores and household goods shops did report increased sales with these retailers telling us a longer period of Black Friday discounting helped boost sales.”

Total retail sales had jumped 0.9 percent in October, a figure skewed by a drop in September which saw a public holiday for the funeral of Queen Elizabeth II.

“The drop in retail sales in November suggests that consumers are buckling under the pressure of surging... inflation, despite additional government support for their energy bills,” noted Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

“Retailers likely will endure a further drop in demand in December due to the heavy snowfall” seen across the UK so far this month.

In contrast, oil, banks and industrial miners have fared better, set to end the year higher between 5% and 40%.

Firms listed in the blue-chip FTSE index benefit largely from overseas earnings, hence, a weakening pound would generally lift the index.

The FTSE 100 has risen by a meagre 0.1% this year against a 10% drop in the pound.