UK manufacturers see exports to USA impacted by tariffs

UK manufacturers’ opinion of the USA as a growth market for exports have fallen sharply, with the USA slipping out of the top three global regions for the first time according to a major survey published today. The findings come on the back of official data published last week which showed exports to the USA dropping by £2 billion in April, the steepest monthly decline since records began in 1997.

According to the latest Make UK/BDO Q2 Manufacturing Outlook survey, the USA has slipped to fourth place as a growth market for UK manufacturers, with preference now shown to Asia/Oceania and the Middle East as companies respond to tariffs and increased uncertainty. This is the first time the USA has not been the second most favoured destination for export growth for UK manufacturers — behind the European Union (EU) — in the history of the survey.

Separate data from a survey on the impact of tariffs conducted by Make UK shows that six in 10 companies expect their export volumes to the USA to be hit, while a similar number (63%) expect their business overall to be negatively impacted. Furthermore, almost a third (30%) of companies are assessing changes to their supply chains in terms of where they source from, while just 4% say they will consider setting up manufacturing operations in the USA.

Make UK also referred to figures from the Q2 survey carried out by its American counterpart, the National Association of Manufacturers, which showed that US manufacturers’ optimism has dropped to the lowest level since the pandemic. Trade uncertainty was cited as the biggest factor, reported by more than three-quarters of companies (77%).

The survey also reveals worsening prospects for UK manufacturers ahead, with the growth forecast for manufacturing in 2026 slashed from a previous +1% to -0.5% in the face of a weak domestic economy and tariffs. Given the growth forecast is also negative for this year (-0.2%) off the back of a flat year in 2024, this presents a worrying trend. In response to the significant downgrading of growth prospects for manufacturing, Make UK warned that the forthcoming industrial strategy must address the UK’s crippling industrial energy costs.

Eye-watering energy costs
Seamus Nevin, chief economist at Make UK, said: “While at first glance the headline numbers may not look too bad, manufacturers are facing a gathering storm of huge uncertainty in one of their major markets, a skills crisis and eye-watering energy costs which are providing a harsh reality for many. In response, it is absolutely essential that the forthcoming industrial strategy takes bold measures to bring down the cost of energy and takes equally radical action to ensure companies can access the people they need to take advantage of a more competitive landscape. If these two issues are not addressed, then we will face the serious prospect of the UK accelerating into de-industrialisation.”

Richard Austin, head of manufacturing at BDO, said: “This quarter’s results are a testament to the increasingly challenging landscape our British manufacturers are operating in. The forecasted decline in growth is concerning and the delayed industrial strategy won’t help to assuage uncertainty in the sector. That said, there remains pockets of positivity. Growing output levels are proof of the resilience of UK manufacturers and last month’s trade deals should remove barriers as UK companies seek new trading partners and opportunities for growth. As always, they need urgent clarity and targeted investment from the UK Government if this recovery is to continue into the next quarter.”

According to the Manufacturing Outlook survey, the balance on output recovered from -1% in Q1 to +9% in the last quarter, with total orders following a similar pattern up to -2% from -6% in Q1. Export orders have resumed the pattern of shielding a weak domestic market, increasing to +7% from +1%, while UK orders remained negative at -1% (-7% in Q1).

Looking forward, the survey shows prospects appear to be slightly brighter with output forecast to increase slightly to +11% and total orders to +13% in Q3. The recovery in exports also appears to be much firmer after the global turmoil of the first half of the year, increasing to a balance of +22% which is above long-term averages.

Recruitment intentions remained fairly flat at +1% (-3% in Q1) while investment intentions continued on a sharply downward trend from the last quarter of 2024, barely remaining positive at +2% (+5% in Q1 and +10% in Q4 2024). Make UK warned that if this downward trend continued it would be highly likely that investment intentions will turn negative in the second half of the year.