Manufacturing edges towards year of decline amid ‘noticeable impact’ of tariffs
UK manufacturing’s falling production levels show no signs of ending as the spectre of tariffs brings a “noticeable impact” on exporters’ sales, leading analysts have said.
Firms have had to navigate through sticky inflation and high energy costs for the best part of three years as the UK’s weakened economy has failed to bounce back under Labour.
But new data suggests that extra pressures brought by higher taxes and tariff threats are weighing on manufacturers’ ability to boost production, with researchers at S&P Global warning the sector has now seen seven months of contractions in output.
Its purchasing managers’ index (PMI) for the sector saw a marginal improvement from March but remained well below the neutral 50-figure benchmark.
The US offered the UK and other countries a reprieve from tariffs but it has held firm by imposing taxes of over 100 per cent on all imports from China.
Manufacturers fear disruptions in supply chains will crush their businesses as confidence hit its lowest level in more than two years, while the time taken for vendors to deliver products increased for the sixteenth month in a row.
Exports business fell at the quickest pace since the pandemic while inflation expectations for purchases hit a 28-month high as manufacturers have seen general raw material prices surge.
S&P Global Market Intelligence director Rob Dobson said that “increased trade uncertainty” was damaging UK manufacturing.
“Although domestic demand remains soft, overseas demand is especially weak,” Dobson said.
“Surveyed manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility.”
Taxes hit manufacturing
Companies across the UK’s manufacturing sector are also adjusting to tax changes which came into effect in April.
Chancellor Rachel Reeves’ £25bn tax raid on employers’ national insurance contributions (NICs) has forced manufacturers to offset costs by lowering headcounts. S&P Global’s survey of more than 650 firms noted that redundancies and hiring freezes had been made.
Firms have also gone lengths to protect profit margins as fewer stocks were purchased while price growth expectations for their sales hit a 26-month high.
UK manufacturers are closely looking out for what the government’s next move will be.
Chancellor Rachel Reeves is set to lay out a ten-year industrial growth plan, which firms hope will provide some direction for UK manufacturing.
The government’s spending review could also boost confidence as manufacturers hope investment levels can rebound after recent slumps.