The UK manufacturing sector’s downturn deepened in February, with output and new orders falling at faster rates in the shortest month of the year. Meanwhile, the sector witnessed its steepest rate of job losses since 2020.
The latest seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index™ (PMI®) fell to a 14-month low of 46.9 last month. February’s PMI was lower than the 48.3 recorded in January, but above the earlier flash estimate of 46.4. The PMI has now remained below the neutral 50.0 mark for five months in a row.
Cost pressures, which saw customers lack willingness to spend, as well as the impact of policy changes announced in last year’s Budget, left the domestic market decidedly downbeat. Moreover, reduced new order intakes from Brazil, Europe, the Middle East and the United States led to new export business falling at its quickest pace for a year.
Each sub-industry covered by the survey (consumer, intermediate and investment goods) saw production, new business and foreign demand decline.
The deepening downturn at manufacturers filtered through to the labour market in February, with the latest data signalling the steepest cut to employment in the sector since May 2020.
Is the Eurozone showing signs of a recovery?
While the UK’s manufacturing downturn continued, the Eurozone posted its highest PMI for two years, with contractions in both output and new orders easing in February.
Germany, France, Italy and Austria all saw their declines soften last month, while Ireland recorded a stronger expansion.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “It’s still too early to call it a recovery, but the PMI hints that the manufacturing sector might be finding its footing. New orders are falling at the slowest pace since May 2022, and production is edging closer to stabilising. So, after almost three years of recession, we could see a bit of growth in the coming months. A quick formation of a government in Germany, political stability in France, and a deal with the US on key tariff issues would definitely help.
Commenting on the latest UK Manufacturing PMI figures, Rob Dobson, Director at S&P Global Market Intelligence, said: “February PMI data show UK manufacturers facing an increasingly difficult trading environment. Weak demand, low client confidence and rising cost pressures are accelerating the downturns in output and new orders, while the Autumn Budget’s changes to the national minimum wage and employer NICs are driving up inflation fears and intensifying the downward trend in staff headcounts. The pace of manufacturing job losses is currently running at a rate not seen since the pandemic months of mid-2020.
“Cost and demand considerations also encouraged cutbacks to purchasing activity and stocks, as the tough economic backdrop placed manufacturers on an increasingly defensive footing. Input costs are rising at the fastest pace for over two years, as suppliers front load expected increases in their own wage and NIC costs. Factory gate selling price inflation has also hit a 22-month high. This combination of absent growth and rising prices will contribute to a growing dilemma for the Bank of England over the coming months.”
Boudewijn Driedonks, Partner at McKinsey & Company comments: “The UK’s manufacturing sector is experiencing a deeper slowdown, while Europe’s decline is showing signs of easing.
“When UK PMI was above 50 in previous months, it was upheld by domestic demand, despite weak esports. Now we are seeing a downbeat home market, combined with weak exports, keeping the UK manufacturing industry in contraction territory.
“UK manufacturing output has fallen to a 14-month low, marking a trend reversal after a period of relative stability. This deepening contraction adds to the sector’s challenges, as it grapples with input costs rising at the fastest rate in over two years. There is reduced confidence, with consumer goods being the worst hit sector. This slowdown has been accompanied by an employment drop that was the highest since May 2020. These are sobering results for the UK’s industrial sector.
“By contrast the pace of decline in the Eurozone manufacturing sector is slightly stabilising, with a PMI uptick across most countries. After significant restructuring in the manufacturing workforce across Europe, it is good news that although new orders continue to fall, they are now falling at a much slower rate. Importantly in Germany, foreign demand for intermediate goods improved. While in France business growth expectations hit their highest since last June. Although new orders continued to fall, it was at the slowest rate in eight months.
“The big question is whether this momentum can be sustained, leading to a path to growth. With manufacturing sentiment improving, businesses will be closely monitoring whether the rate of contraction continues to soften. In the months ahead, the effects of new industrial and trade policies will all come into play. The manufacturing sector’s trajectory remains uncertain as we move through 2025.”
“With input costs increasing across the UK and the continent, and demand remaining fragile, it is a delicate time for setting pricing strategies, requiring careful consideration of how cost increases are managed across different markets.”
Commenting on the announcement, Huw Howells, Head of Industrials and Manufacturing at Lloyds, said: “Despite reporting a challenging month, businesses in the sector continued to work hard to find ways to navigate economic headwinds. Indeed, we have recently seen a strengthening in business confidence – our latest Business Barometer report showed that this has risen by 13 points to 51% among manufacturers in February. Businesses will also be looking forward to seeing more details of the UK’s Industrial Strategy this spring to help drive further growth and investment in the sector.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK said: “A fourth month of falling output led the manufacturing sector to post a 14-month low of 46.9 in February, the fifth consecutive month that the reading has signalled a sector contraction. The PMI notes that the domestic market is particularly struggling with rising cost pressures and an increased focus of tightening spending, in addition to increased employer National Insurance contributions looming on the horizon.
“This is resulting in a very clear impact on the labour market. The PMI reports the latest data signals the steepest cut to employment is ongoing in the sector since May 2020, due to weak demand, cost control and upcoming increases to minimum wage and National Insurance policy. This is an issue which is front of mind for manufacturers, as employment costs were ranked as the highest risk to growth in PwC and Make UK’s 2025 Executive Survey.
“We know that clients are looking for further clarity and certainty in light of challenging market conditions and disruptive geopolitics. The UK government can help by firming up on the investment agenda for the priority sector of Advanced Manufacturing and what that means for the various regions of the UK with specific manufacturing strengths; alongside continuing to build out long-term clarity on the Industrial Strategy.”
Maddie Walker, Industry X lead for Accenture in the UK, said: “The UK’s manufacturing PMI hitting a 14-month low signals an ongoing difficult start to the year, with persistent cost pressures, high energy costs, and uncertainty continuing to impact the manufacturing industry. British manufacturers will welcome the inclusion of advanced manufacturing as a key growth sector within the government’s Industrial Strategy. To navigate the choppy landscape, manufacturers must take bold steps to boost productivity and resilience. Investing in automation and AI-driven solutions – such as predictive maintenance, smart logistics, and autonomous production systems – will be critical to unlocking efficiencies and driving long-term competitiveness. Now is the time for businesses to ensure they have the skills and technology in place to seize future opportunities.”
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