The UK manufacturing sector is facing its most significant job cuts since 2020, with the S&P Global UK manufacturing PMI survey revealing a sharp decline in activity. The index dropped to 46.9 in February from 48.3 in January, marking a 14-month low and indicating contraction in the sector for the fifth month running.
Rising taxes and inflation have been piling on the pressure, inflating factory costs and leading to reduced output, as concerns over trade tariffs loom large. Manufacturers are particularly feeling the pinch from tax hikes introduced in the October Budget, which have been flagged as key contributors to escalating expenses.
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Chancellor Rachel Reeves' decision to increase company national insurance contributions to fund public service enhancements has been met with a wave of redundancies, shorter working hours, and a reluctance to fill vacancies by factories. These changes, coupled with the upcoming rise in the minimum wage set for April, are prompting industry-wide cutbacks.
Rob Dobson, director at S&P Global Market Intelligence, commented on the situation, stating that the surge in costs is "driving up inflation fears and intensifying the downward trend in staff headcounts".
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Manufacturers are grappling with dwindling demand, fewer orders, low customer confidence and supply chain disruptions both at home and abroad. However, business optimism reached a six-month peak in February, buoyed by investment spending and expectations of an economic upturn.
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Tom Pugh, an economist at consultancy firm RSM, commented: "A combination of weak growth in our major trading partners such as France and Germany, combined with uncertainty around US tariffs, and therefore a potential global trade war, continues to weigh heavily on manufacturing firms."
He noted that the slump in exports is "clearly hampering the manufacturing sector, and given the likelihood of further tariffs and trade disruption, it doesn't look like this will improve any time soon". "The good news is that the domestic economy should recover through this year, helping to support some increase in activity."