A gauge of British manufacturing activity released on Monday pointed to the sharpest contraction in nine months, as orders from domestic and foreign customers fell and ongoing supply chain disruption pushed up costs. The S&P Global manufacturing Purchasing Managers’ Index (PMI) sank to 48.0 in November from 49.9 in October – below an earlier estimate of 48.6 and the 50 level that divides growth from contraction.
S&P’s PMI cited headwinds from a £25bn ($32bn) rise in employment taxes in the new Labour government’s 30 October budget, a seven per cent increase in Britain’s minimum wage, disruption to shipping in the Red Sea and the threat of global goods tariffs. “Manufacturers are left facing an environment of high costs, low demand and raised uncertainty for the foreseeable future,” S&P director Rob Dobson said.
“While companies of all sizes are experiencing a downturn, small companies are the hardest hit, reporting especially marked drops in output, new orders and new export business,” he added. Last week US President-elect Donald Trump said he planned to impose a 25% tariff on all goods the US imports from Canada and Mexico and he has floated blanket tariffs of 10% to 20% on virtually all imports.
Dave Atkinson, UK Head of Manufacturing for SME & Mid Corporates at Lloyds, said: “Despite the measures firms have taken – and the resilience they have shown – to adapt to challenges such as cost pressures and a skills shortage, this month’s dip suggests that the sector continues to face into a complex operating environment. Encouragingly, however, measures to support investment and productivity may help manufacturers in the longer term.”
Accenture’s Industry X lead for the UK, Maddie Walker, said:“A further dip in the UK manufacturing PMI has ended the year on a low note. As the battle for exports heats up, and new orders contract, manufacturers must pursue their plans to offset slowing demand with productivity gains, and this includes reaping more rewards from AI, automation, and robotics. Our latest research1 shows keeping pace with technology is the biggest concern for manufacturers, and investment in technology is expected to rise next year. Manufacturers are also concerned by greater risks from cyberattacks and data breaches – which could deeply hamper production and weaken supply chains. To move forward, British manufacturers need to be targeted with their investment in technology, and ensure their people have the skills to make the most of innovation, so they can become more resilient, and data driven. Manufacturers cannot risk falling further behind as production output continues to slide.”
Christine Hart, Legal Director in the Manufacturing & Supply Chain team at independent law firm Brabners, said: “A second month of consecutive decline prompts concern for manufacturers, following a largely positive year. Many had hoped October’s pre-Budget contraction was merely a blip – however, further decline during the traditionally busy run up to Christmas is likely to raise alarms heading into 2025.
“While many management teams will be confident of delivering growth next year, there remain reasons for caution across the board. In particular, the true monetary impact of the Budget won’t come into force until April. With energy and other input costs remaining high, the impact of the increase to employers’ National Insurance payments and a higher living wage have the potential to compound existing strains for businesses. Long-term forecasting and scenario planning will be vital for those firms under pressure.”
Mike Thornton, national head of manufacturing at RSM UK, added: “Following the Chancellor’s recent fiscal announcement, there has been a wave of concern amongst manufacturers regarding rising costs. The downturn in the headline index coincides with post-budget concerns, particularly around the future implications for employers’ National Insurance contributions (NICs). More notably, there is a noticeable dip in the employment index, which has fallen sharply by four points, with many businesses likely pausing recruitment efforts due to the anticipated financial strain.
“November continues the downward trend of the previous month, reinforcing that it’s not just about the budget. The backlogs of work and new orders indices fell for the third consecutive month, reflective of continued market demand uncertainty. The output index also fell below 50 for the first time since April, another indication that confidence is lower than earlier in the year. A key challenge for manufacturers in 2025 is deciding whether to absorb or pass on increased costs – weaker trading conditions will inevitably make this more difficult.
“There are reasons for optimism however, with future output ticking up, alongside a slight uplift in new export orders, showing some signs of recovery, but remaining below 50. Looking ahead, there’s various geopolitical tensions which will impact industry. The aftermath of the Autumn Budget, coupled with Trump’s proposed tariffs changes in the US are creating the perfect storm of economic pressures for manufacturers. This may prompt businesses to consider reshoring as a strategy to mitigate risk and enhance stability and the publication of the Industrial Strategy next Spring will hopefully provide long-term stability to underpin investment.”
Chris Barlow, head of manufacturing at MHA, said: “Today’s fall in Manufacturing PMI to 48.0 (the second month with PMI below 50) suggests that the sector is facing a near perfect storm of challenges ranging from the fall out of the Budget, a weakened economic outlook for the UK and EU for 2025 and a new US administration introducing potentially damaging new tariffs. However, the Industrial Strategy has been welcomed by the sector.
“The announcements from October’s Budget on the increase in employers’ national insurance contributions and minimum wage have come as a blow to the sector and not instilled the confidence to grow. Businesses are punch drunk with the announcements from the Budget. They will be looking to digest the changes and how they can alleviate some of the additional cost pressures that have now been placed on them.
“However, for those who are bold and confident there will be opportunities out there, particularly investing in tax efficient structures associated with spending on AI and machinery.
“The announcement of the Industrial Strategy was a bright spot for the manufacturing sector as it highlighted the need to increase skills and attract foreign investment. However, at this stage, it is difficult to ascertain whether this will provide the required drivers of growth.
“Looking ahead to 2025, there are several challenges that could impact manufacturers. The UK economy remains in a fragile state following years of high inflation and high interest rates. While inflation has begun to fall, it is unlikely that interest rates will drop as quickly as anticipated earlier in the year.
“The introduction of US tariffs on imports from China, Mexico and Canada could potentially lead to tariffs on other global markets leading to further inflationary pressures. At the same time, the UK’s biggest export market, the EU, is facing its own challenges and its fragile economy remains a cause for concern for manufacturers.
“Geopolitical risks are likely to continue to weigh heavily on both global economics and supply chains which will impact manufacturers directly. The cost to transporters and longer lead times involved in going via the Horn of Africa will inevitably continue to impact manufacturers’ bottom line and these price increases will be passed onto the consumer. The lessons for manufacturers would be to be bold by investing in technology and machinery and to keep supply chains as short as possible to minimise disruption.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK, said: “The sector posted a nine-month low in November of 48.0, owing to multiple factors, but perhaps most acutely due to budgets facing increased scrutiny up and down the supply chain, creating fluctuations in demand and cutbacks in staffing, as businesses look to balance inventories and scale back production volumes.
“Increased employer National Insurance rates effective from next year will already be being factored into budget and growth plans and could possibly add to the domestic market uncertainty referenced by the PMI’s respondents.
“The UK follows the weaker results also shown in the European PMI data, and shows that across both the UK and Eurozone, manufacturers are really feeling the downturn. In particular, smaller manufacturers are seeing a decline in orderbook and production volumes. Across our client base, manufacturers are pointing to cost increases as their key concern.
“Some positive balance remains in the news that over half of manufacturers remain positive about future output growth, albeit with concerns over rising geopolitical tensions, domestic politics and the impact of higher employment costs on future domestic demand.”
Boudewijn Driedonks, partner at McKinsey & Company, said: “The UK’s manufacturing sector is navigating a challenging period, with a nine-month low in activity and a 31-month trend of declining exports. Despite this, the sector has previously shown some resilience, with a recovery earlier this year driven by strong domestic demand.
“Looking ahead to 2025, there are varied levels of optimism. What may raise concern is that the fall in new orders comes with a reported reduction in employment and inventory as well as delays in investment decisions. Delivery times increased, largely driven by externalities including border regulatory issues, North America port disruptions and the Red Sea crisis. The November report is also the first one post the UK Budget, with some firms referring to having reappraised their plans. The crux remains that exports need to be strengthened to lift UK manufacturing results.
“Across Northern Europe, the decline in manufacturing also faces widespread challenges. The three main markets are seeing the decline accelerating, while the growth markets also saw a slowdown in expansion.
“Notably, manufacturing in Greece and Spain continues to grow, albeit at a slower pace, offering some resilience amidst broader slowdowns. France and Germany have faced a further dip in both domestic and foreign orders, with softer demand in export markets leading to adjustments in factory gate prices and putting margins in B2B under pressure. Also in the Eurozone, the underlying data is showing that employment, inventory and prices are declining.
“Manufacturers will have to navigate a delicate balance of pricing, finding pockets of demand and opportunities to enhance competitiveness to uphold margins and drive results for Q1 2025.”
For more articles like this, visit our Leadership channel.
