British manufacturers reduced staff numbers at the sharpest rate in nearly five years last month, as rising costs—driven by a payroll tax hike—combined with weak domestic and international
demand, according to a survey released on Monday.
Despite these challenges, manufacturers showed the highest level of optimism in six months, anticipating an economic rebound.
The S&P Global Purchasing Managers' Index (PMI) for UK manufacturing stayed below the 50.0 threshold, which separates expansion from contraction, for the fifth consecutive month. In February, it dropped to a 14-month low of 46.9, slightly above the preliminary estimate of 46.4 but down from January's 48.3.
Employment in the sector saw its steepest decline since May 2020, early in the COVID-19 pandemic. Factories reacted to rising social security costs by cutting temporary positions, reducing employee hours, making redundancies, and refraining from hiring replacements.
The increase in National Insurance Contributions—announced by Finance Minister Rachel Reeves last October to support public services and investment—will take effect on April 1, coinciding with a nearly 7% rise in the minimum wage. Manufacturers reported that suppliers were already raising prices in anticipation of the changes.
In response, factories increased their selling prices at the fastest pace since April 2023, S&P Global noted.
Export demand remained weak, with new overseas orders declining at the sharpest rate in a year. However, business confidence climbed to its highest level in six months, driven by investment plans, new business initiatives, and hopes for an improving economic climate.
The UK economy saw minimal growth in the latter half of 2024, and the Bank of England recently slashed its 2025 growth forecast to just 0.75%.
“This mix of stagnant growth and rising prices presents a growing challenge for the Bank of England in the coming months,” said Rob Dobson, Director at S&P Global Market Intelligence.
The final PMI data for Britain’s dominant services sector is set for release on Wednesday. Photo by John Haig, Wikimedia commons.