The UK manufacturing sector’s downturn continued in April, with output, new orders and employment all decreasing last month. Meanwhile, input cost inflation hit a 28-month high, further exacerbating the newly effective minimum wage and National Insurance hikes.
Despite the seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) rising slightly to 45.4 in April, up from 44.9 in March, the sector remains below the neutral 50.0 mark for the seventh straight month.
In April, manufacturers scaled back production in response to reduced intakes of new work from both domestic and overseas markets. Panellists reported that rising economic and trade uncertainties (including prospective US tariffs) had drained confidence from both consumer and business-to-business clients, resulting in an increased reluctance to commit to new contracts.
The total level of new business placed with UK manufacturers contracted for the seventh month in a row in April. Similar to the picture seen for production, the rate of decrease in new work received remained substantial despite easing slightly since the prior survey month. New export orders fell at the quickest pace in almost five years, with demand from the US, Europe and mainland China all lower. Anecdotal evidence indicated that weak client confidence, trade uncertainty (including prospective US tariffs) and generally quiet global markets had all weighed on export demand.
The tough current backdrop, rising cost pressures and increased uncertainty at manufacturers and their clients alike led to lower business optimism, reduced staff headcounts and cutbacks to purchasing and stocks during April. Business optimism fell to a 29-month low, with less than half of the panel (47%) expecting output to rise over the coming year.
Commenting on the latest PMI figures, Rob Dobson, Director at S&P Global Market Intelligence, said: “The start of the second quarter saw UK manufacturing buffeted by adverse global market conditions, rising cost pressures, deteriorating supply chains and increased trade uncertainty. April saw further contractions in output, new orders and exports, as well as a slump in business confidence to its lowest ebb since November 2022.
“Although domestic demand remains soft, overseas demand is especially weak. New export business fell at the quickest pace for nearly five years, with demand from clients in the US, Europe and mainland China all declining. Surveyed manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility.
“Manufacturers are also seeing an increasingly harsh cost environment, with purchase price inflation hitting a 28-month high. Alongside general raw material price increases on global markets, UK producers are also facing domestic inflationary pressure from increases to National Insurance, minimum wages and the knock-on impact of the latter on higher pay grades. These increased costs are resulting in a combination of higher selling prices and cutbacks to non-essential spending on staffing and purchasing, potentially reinforcing the ‘rising costs, declining demand’ backdrop.”
Chris Barlow, head of manufacturing at MHA, comments on today’s manufacturing PMI data: “The slight uptick in manufacturing PMI to 45.4 has come as a welcome surprise, but still remains well below the 50 threshold, and frankly, we’re not seeing a huge amount of optimism in the sector. The industry is operating in a subdued environment and is continually grappling with ongoing macroeconomic challenges. This is also the first month that businesses in the sector will have paid both minimum wage pay rises and employers’ National Insurance. On top of this, the cost of electricity is the highest in Europe, placing additional demands on the bottom lines of manufacturers across the country and with the combined increase in costs causing them to think about cutting jobs.
“With costs rising on every front and uncertainty around a trade deal between the US and the UK, our clients are being very cautious and delaying any long term investment decisions. Until a deal is reached between the UK and the US, closer ties are forged again with our European neighbours, or an announcement is made on the long-awaited Industrial Strategy, the prospects for investment and hence growth remain weak.
“One recent bright spot in the gloom surrounding the sector was the government’s decision to seize control of British Steel which, hopefully secures not only supplies vital for our country’s infrastructure but also jobs in the sector.”
Boudewijn Driedonks, partner at McKinsey & Company, said: “The sharpest fall in new export orders for almost five years, is a wake up call for the UK’s manufacturing sector. Soft domestic demand, in combination with repercussions from shifting global trade dynamics are putting the brakes on growth. Inflationary pressures increased to a two-and-a-half-year peak, with rising input costs attributed to labour costs, which are being passed through to factory output prices.
“While the trends in domestic and international trade stem from different fundamentals, they have now jointly pushed business confidence over the edge, to its lowest level since November 2022.
“In the current fog of uncertainty, companies need to plan their moves against dynamic scenarios, yet not miss the opportunity to create strategic separation in the current volatility and changing trade flows. Manufacturers are adjusting pricing strategies, renegotiating contracts, and fortifying supply chains to enhance resilience. Those who get ahead will be those who can turn tariff and inflation uncertainty into strategic separation by establishing pricing strategies that are transparent, predictable, and credible, under multiple scenarios.”
Mike Thornton, Head of Industrials at RSM UK, said: “The headline PMI increased slightly on the previous month, however is still well below 50, most likely driven by ongoing uncertainty towards US tariffs and overseas trade agreements. Notwithstanding these headwinds, the sector continues to show resilience and adapt to these challenging geopolitical changes. Despite the overall downward trend, the falls in quantity of purchases, stocks of finished goods and stocks of purchases suggest that manufacturers are aware of the challenges and are proactively managing their working capital, mitigating excess inventory and preventing money being tied up in unused stock.
“More encouragingly, we’re seeing a shift in financial equilibrium as output prices are now rising faster than input prices, demonstrating manufacturers are finally able to pass on increased costs, which is critical for navigating further economic pressures such as increases to employers’ National Insurance contributions in addition to tariff uncertainty.”
He added: “It’s reassuring to see the sector is being resourceful and already focusing on what factors it can control, including pricing and inventory levels, to remain robust. However, the next area of focus will be suppliers’ delivery times, with any potential changes reflective of tension in the supply chain. Although not under immediate stress, manufacturers need clarity and confidence to make long-term investment decisions from the incoming Industrial Strategy, enabling businesses to mitigate risks while also remaining resilient to future shocks.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK said: “April’s PMI data will cause little surprise to UK manufacturers, who continue to see a myriad of challenges as global markets navigate uncertainty. The PMI showed sector contraction for a seventh straight month at 45.4 in April, with the total level of new business placed with UK manufacturers also contracting seven months in a row.
“In addition to optimism falling to its lowest level in more than two and a half years, the other notable point in this month’s data is an upward, but unwelcome trend of inflation within the sector. The PMI notes that April saw average purchases prices rise at the quickest pace since December 2022, linked to energy costs, the passing on of increased staff costs at vendors and global supply chain uncertainties – and driven, at least in part, by prospective US tariffs.
“Clients and consumers will ultimately feel the brunt, with the data showing that output price inflation has accelerated to a 26-month high. As a result, manufacturers are rapidly assessing supply chain and tariff changes to assess where the challenges and opportunities are.”
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