The end of the opening quarter saw the downturn at UK manufacturers deepen further with rates of contraction in output and new orders accelerating, as the difficult operating environment continued. Business confidence slumped to a near 2.5-year low, as concerns about Government policy, rising costs, increased geopolitical tensions and potential tariff uncertainty impacted on both current and expected future conditions.
The seasonally adjusted
S&P Global UK Manufacturing Purchasing Managers’ Index fell to a 17-month low of 44.9 in March, down from 46.9 in February but slightly above the earlier flash estimate of 44.6. The PMI has now signalled a deterioration in overall operating conditions in each of the past six months. March saw UK manufacturing production decline for the fifth straight month and at the quickest pace since October 2023. The downturn was widespread, with contractions signalled across all sub-sector definitions (consumer, intermediate and investment goods) and all size categories (small, medium and large), while small-scale producers saw the steepest decrease in output.
By far the most significant factor underlying the retrenchment in production volumes was a slump in the level of new business received during March. New order intakes fell to the greatest extent for over 1.5 (since August 2023) and at one of the quickest rates since the pandemic and lockdown affected months of 2020. The 6.9-point drop in the New Orders Index since February was also the joint-sharpest fall since 2020, further emphasising the severity of the acceleration in the pace of decline.
Manufacturers reported a tough trading environment, beset by rising geopolitical tensions, weak client confidence and economic slowdown in both domestic and overseas markets. Disruption to new order inflows was also caused by concerns about the forthcoming rises to the national minimum wage
and employer national insurance (especially related to the cost implications for manufacturers and their clients alike) and the possibility of tariffs.
New export business contracted for the 38th successive month in March, and at the quickest pace since August 2023. Lower intakes of new export work were mainly linked to weaker demand from the USA and Europe. Some firms also noted reduced levels of new business from China, India and the Middle East. The weaker economic backdrop combined with rising uncertainty regarding the future had a severe impact on business confidence among manufacturers during March.
Trade tensionsOptimism slumped to a near 2.5-year low, with only 44% of companies expecting activity to rise over the coming year (down sharply from 56% in February). Manufacturers expressed concerns around Government policy (particularly the effects of national minimum wage and national insurance
increases), rising global and trade tensions, cost increases, economic slowdown, recession fears and gloomy customer confidence.
Cost-caution also remained pervasive among UK manufacturers in March, leading to cutbacks in employment, stock holdings and purchasing activity. Staffing levels have been reduced for five consecutive months, although the rate of job losses eased noticeably since February’s near five-year
record. Cuts were linked to the economic backdrop, rising costs, non-replacement of leavers, redundancies and hiring freezes. Some reductions to headcounts reflected efforts to cut excess capacity, highlighted by a further marked reduction in backlogs of work at factories.
March saw the rate of input price inflation ease slightly from February’s 25-month high. There were reports of higher costs for chemicals, electronics, energy, metals, packaging, paper, timber and transportation as well as suppliers passing on increases to their own cost bases. Factory gate selling prices meanwhile rose at the quickest pace since April 2023.
Rob Dobson, director at S&P Global Market Intelligence, said: “March proved to be another tough month for UK manufacturers. Output contracted at the quickest pace since October 2023, as new business growth fell at the steepest rate for 1.5 years, suffering one of its sharpest falls since the pandemic lockdown of 2020. Companies are being hit on several fronts. Many reported that domestic market conditions are deteriorating, costs are rising due to changes in the national minimum wage and national insurance contributions, geopolitical tensions are intensifying, and global trade faces potential disruptions from tariffs.
“Although the impact on production volumes was widespread across industry, it was again small
manufacturers that took the hardest knock. The outlook is also darkening, with overall business
optimism plunging to its lowest levels since late-2022. Fears about current and future performance put manufacturers on an increasingly cost cautious footing, with employment, stock holdings and purchasing all falling as companies looked to work leaner and protect cashflow, margins and competitiveness. Many firms are clearly hunkering down as they expect difficulties to continue in the coming months.”
Business confidence in declineGinni Cooper, MHA audit partner, said: “The manufacturing PMI coming in at 44.9, while not as bad as many feared, is the lowest recorded since late 2023. The Chancellor’s Spring Statement last week did little to allay the concerns of the UK’s manufacturers. With business confidence in decline and increasing headwinds from across the Atlantic in the form of trade tariffs, it is difficult to see where significant sector growth is going to come from, and that is reflected in these figures.
“However, there are some rays of positivity for the sector on the horizon. The Government’s commitment to increase defence spending in the Spring Statement will undoubtedly have a positive impact across the related supply chains, and help bolster investment in technology and skills in these areas. There is also the long-awaited Industrial Strategy, which will hopefully set a robust and clear road map for getting the manufacturing sector back on track. While our clients are feeling positive about the Strategy, they are also acutely aware at how quickly the business environment is changing – primarily down to the US administration’s tariff announcements. A concern is that as soon as the document is released it may well be out of date.
“Only last week, the USA landed a 25% tariff on automotive imports. With the USA being the largest market for many UK-based OEMs this will have a significant impact across the whole supply chain, unless a deal can be brokered with the UK Government. While technology, particularly the deployment of AI, could be considered as the next step for manufacturers in their quest for growth, some simply don’t have the capital available to invest in this area.
“Faced with shrinking order books and the impending rise in National Insurance contributions and minimum wage increases, reserves of investment capital, on new technology for example, will become significantly depleted. For business growth, across all sectors, stability is key. But unfortunately, at the moment, the business environment is far from stable.”