Mixed bag of PMI data as services grow but manufacturing slumps
Chancellor Rachel Reeves has received mixed signals about the state of the UK economy ahead of her Spring Statement as S&P Global’s purchasing managers’ index (PMI) pointed to an upturn in services while manufacturing declined again.
The Spring Statement will be delivered on Wednesday as global trade war tensions escalate and worries over incoming tax hikes deepen.
Now the latest S&P UK PMI survey has signalled that manufacturers are already suffering from President Donald Trump’s tariff threats on steel and aluminium as weak demand has taken its toll on declining export sales, coming on top of cripplingly high UK energy costs.
The UK manufacturing PMI fell further to 44.6 in March, which represented an 18-month low.
Input cost inflation remained far higher than the long-run survey average, while manufacturers’ confidence also continued to tumble.
Rachel Reeves is not expected to release her full industrial strategy until the middle of this year, although a specific plan for manufacturing may come earlier.
The latest data by S&P Global reflects a series of surveys showing a slump in manufacturing.
Ben Jones, an economist at the Confederation of British Industry (CBI), blamed a fall in manufacturing output at the beginning of the year on Rachel Reeves’ £20bn hike to National Insurance, which is set to come into effect next month.
Commenting on the PMI Manufacturing index dropping again, Shadow Business Secretary, Andrew Griffith, said: “Another day, another damning metric about the state of the UK economy.
“Today’s manufacturing PMI shows the toll uncompetitively high energy costs and fears about Labour’s jobs tax and Employment Rights Bill are having on UK manufacturing businesses.”
There were some positive signs for Reeves as the composite output index hit a six-month high while business activity also sat comfortably above the 50-figure mark which separates growth from contraction.
But economists at the consultancy Capital Economics suggested that the data was “still consistent” with near-stagnant GDP growth in recent quarters.
Rob Wood, chief UK economist at Pantheon Macroeconomics, also said the survey data also pointed to the UK’s recent economic woes.
“The PMI’s surge in March shows that the economy has bottomed as firms digest the payroll tax hikes and fears of further tax rises this month fade,” he said.
Private sector employment also continued to fall, though not at the high pace seen in February.
The new survey offers Rachel Reeves some “respite”, according to Chris Williamson, chief business economist at S&P Global Market Intelligence.
But he also pointed out that the survey should not be depended on by the Chancellor.
“Just as one swallow does not a summer make, one good PMI doesn’t signal a recovery,” he said.
“The improvement is also being driven by only small pockets of growth, notably in financial services, with consumer-facing business and manufacturers continuing to struggle against headwinds both at home and abroad.
“These headwinds include the additional costs imposed on businesses in the Budget, low confidence among businesses and households, and sluggish demand at home and abroad, the latter linked to heightened geopolitical uncertainty resulting from US tariff policies.”