Photo: Tata Steel UK LtdUK manufacturing production fell back into contraction at the end of the opening quarter of 2026, as rising uncertainty surrounding geopolitical tensions, the war in the Middle East and direction of domestic economic policy led to a scaling back of output volumes. March also saw a steep rise in input price inflation and a marked increase in supply chain stress. The seasonally adjusted
S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) posted 51.0 in March, down from 51.7 in February and below the flash estimate of 51.4. The PMI has remained above the neutral 50.0 mark for five successive months.
Two of the PMI sub-components — new orders and suppliers’ delivery times — were at levels normally consistent with an improvement in operating conditions. That said, longer lead times in March were mainly the result of increased supplychain stress resulting from the Middle East conflict as opposed to order books driving greater demand for suppliers“ services. Production, employment and stocks of purchases all contracted.
Manufacturing output decreased for the first time in six months, as a solid contraction in the intermediate goods industry more than offset mild (but slower) expansions at consumer and investment goods producers. The scaling back of production volumes was linked to rising uncertainty, war in the Middle East, stock management initiatives and lower levels of confidence about the year ahead at manufacturers and their customers alike.
Business optimism regarding the outlook for production volumes dropped to its lowest level September 2025. Moreover, the fall in the Future Output Index since February (5.6 points) was the steepest one-month decline in a year.
Rising geopolitical tensions, the war in the Middle East, ongoing uncertainty about UK Government policy and fears about rising price pressures and supply-chain insecurities all weighed on business confidence. Sentiment decreased across the consumer, intermediate and investment goods sectors and at small-, medium- and large-scale producers. Data broken down by company size suggested small manufacturers had the least positive outlook for the year ahead.
Increase in lead timesThe outbreak of war in the Middle East and closure of the Strait of Hormuz had a marked impact on supply chains and purchasing costs during March. Average vendor delivery times lengthened to the greatest extent in over 4.5 years, with a quarter of panellists reporting an increase in
lead times compared to only 2% reporting a decline. A number of firms noted that recent events were exacerbating existing strains on supply chains (for example the Red Sea crisis and post disruptions).
Average input costs rose at the quickest pace since October 2022, mainly reflecting spikes in the prices of energy, oil, gas and other associated costs. Almost half of companies (49%) reported an increase in purchase prices, while only 2% saw a decrease. The seasonally adjusted Input Prices Index rose by 15 points month-on-month, its second-steepest gain since the survey began in January 1992 (beaten only by October 1992 in the aftermath of the UK's withdrawal from the ERM).
March data suggested that demand held up comparatively well in the face of rising market uncertainty. New orders rose for the fourth successive month, albeit at a slower pace than in February, while new export business also continued its recent upturn. There were reports of a rise in new orders from the USA, Europe, mainland China, APAC and Brazil.
There were also some reports that margins were squeezed in order to secure new contracts. This was despite a marked rise in selling prices, the steepest since May 2025. Pressure on margins also led to a reluctance to hire staff, leading to further job losses. Employment fell at the quickest pace since September 2025.
Ongoing concernsRob Dobson, a director at S&P Global Market Intelligence, said: “UK manufacturing output contracted for the first time in six months in March, as the war in the Middle East and ongoing concerns about domestic economic policy led to a scaling back of production.
“The impact of the war also caused noticeable shifts in the cost and supply chain backdrops. Delivery times lengthened to the greatest extent since mid-2022, while the acceleration in input price inflation was the steepest since the aftermath of the UK's withdrawal from the ERM in 1992. The resulting high-cost environment and shortages of inputs were also factors stymieing production volumes. The darker economic and geopolitical backdrop is also weighing on business confidence and hiring trends. Optimism about the year ahead has slumped to a six-month low and the latest round of job cuts is the deepest since last September.
“The one possible positive is that, despite rising at a slower rate, the trend in new order inflows held up better than production. This suggests that the drop in production is currently more of a supply issue than one caused by an outright downturn in demand, though it is hard to see how demand can prove resilient in the face of current high energy prices and economic uncertainty unless there is a swift resolution to the war in the Middle East.”
Richard Powell, a partner at
MHA, commented: “UK manufacturers are continuing to operate in an environment dominated by uncertainty. While the latest S&P UK Manufacturing PMI data remains relatively flat, which is positive news given the uncertain operating environment, many manufacturers will be looking to batten down the hatches. Confidence is fragile, with geopolitical tensions, volatile energy prices and lingering inflationary costs all weighing heavily on decision‑making.
“This uncertainty makes it extremely difficult for manufacturers to commit to investment or for funders to feel comfortable supporting longer‑term plans. For many businesses, the focus is on resilience and simply riding out the storm rather than pursuing growth. Supply chains are also under renewed scrutiny, particularly where there is reliance on the Far East, and any move towards onshoring or alternative energy sources will require sustained, long‑term thinking rather than quick fixes.
“With interest rate cuts currently on hold and wider energy relief not expected until 2027, businesses across the sector are feeling the pinch. These pressures are largely external, rather than a reflection of how companies are being managed, but they will continue to shape the outlook for UK manufacturing in the months ahead.”