UK Manufacturing PMI: industry downturn continues as 2025 unfolds

Posted on 3 Feb 2025 by James Devonshire

The UK manufacturing sector’s downturn continued in January, with output, employment and new orders all falling further in the first month of the year, new figures released today show.

The latest seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index™ (PMI®) posted 48.3 in January, up slightly from December’s 11-month low of 47.0.

The UK manufacturing industry has now been in a state of contraction for the past four months.

Weak demand and lacklustre business and consumer confidence were the main factors underlying the latest scaling back of output volumes, while input price inflation rose to a two-year high.

New business levels also decreased for the fourth consecutive month, with manufacturers citing minimum wage legislation changes and increased employer national insurance (NI) contributions as reasons for cutbacks in non-essential expenditure at manufacturers and their clients alike.

Germany industry’s downward spiral shows signs of abating

While we do not yet know the full Eurozone manufacturing PMI figures (at time of writing), German industry’s downturn showed some signs of recovery in January.

Indeed, the HCOB Germany Manufacturing PMI posted 45.0 in January — up from 42.5 in December — an 8-month high.

But despite the softening, January saw another round of job cuts across Germany’s manufacturing sector, to extend the current period of staff retrenchment to 19 months.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said that “fear of US tariffs, snap elections, and rising insolvencies are not exactly the recipe to end the recession in the [German] manufacturing sector.”

Commenting on the latest UK Manufacturing PMI figures, Rob Dobson, Director at S&P Global Market Intelligence, said: “The start of 2025 has seen the downturn in the UK
manufacturing sector continue. Factory output, new orders and employment all fell further in January as companies faced weak market demand, rising costs and a deteriorating outlook.

“The latest survey also suggests that this retrenchment is being hardest felt among small companies. Largesized manufacturers fared better, seeing output and new orders recover during January.

“There nevertheless seems little scope for any imminent improvement in performance across the board. Demand conditions remain weak in both domestic and overseas markets, cost pressures are rising and will likely continue to do so as changes to the minimum wage and employer NI announced in last year’s Budget feed through. Business optimism consequently remains close to December’s two-year low, while input price inflation has spiked to a two-year high.

“A stagnant economy and rising cost burdens leave policy makers with a real dilemma, balancing the need for rate cuts to support flagging growth and a declining labour market against the need to contain inflationary pressures.”

Accenture’s Industry X lead, UK, Maddie Walker, said: “A difficult start to 2025 marks three straight months of contraction for the UK’s manufacturing industry. With business confidence still fragile due to spiralling costs, uncertainty, and falling export demand, manufacturers will want to turn to technology to help make their supply chains more efficient and resilient in the new year. The Chancellor’s Plan for Change called for the UK’s advanced manufacturing sector to help spearhead growth. To contribute to the national momentum for growth, manufacturers must not only focus on transformative technologies but also upskill their workforce to effectively use robotics and AI.”

Ginni Cooper, Manufacturing partner at MHA, said: “Although the rate of decline in manufacturing output has thankfully eased slightly according to the PMI figures out this morning, the sector remains in a fragile state and is currently facing a near perfect storm.

“Increasing labour costs, weak demand in the UK and the EU plus concerns about future tariffs from the US do not make a happy picture. Price increases for customers are unfortunately inevitable.

“On the upside our clients are now prepared for April and the tax rises that are coming and as long as there are no unexpected further surprises in the form of employment or corporation tax rises they can begin to plan for the future with more stability and confidence. The sector has a reputation for innovation and battling through difficult times.

“The imminent launch of the long-awaited Industrial Strategy in late March which we hope will galvanise the sector and the expectation of interest rate cuts throughout the year in the UK and the EU also suggest there are better times ahead for manufacturers.

“Many though will be asking when. An interest rate cut this Thursday would be a helpful start.”

Chris Spray, Customer Success Director at Lineview, commented: “The manufacturing sector has long been the driving force of economic stability and innovation in the UK, but the continued decline in volume output and new orders according to the S&P Global UK Manufacturing PMI, signals a critical need for strategic intervention from the UK government. With rising costs and weak demand dominating the discussion, the question is how the sector can enhance productivity at pace to remain globally competitive.

“While the increase in National Insurance has been framed as an added burden, it also serves as a catalyst to boost productivity. With labour costs rising, manufacturers have a clear incentive to invest in automation, AI-driven efficiency and smart supply chains. Other leading economies are already accelerating in this direction and without similar action, UK manufacturing risks falling behind. The anticipated Industrial Strategy presents an opportunity to turn the tide. Targeted support for smart manufacturing, workforce upskilling and productivity-enhancing technology must be central to any recovery plan. Without this, the sector risks stagnation just as others accelerate towards a more resilient, tech-driven future.”

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