Manufacturers cut back on recruitment to mitigate post-Budget headwinds

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has increased to 48.3 from 47, Mike Thornton, National Head of Manufacturing at RSM UK, said: “The slight uptick in the manufacturing PMI in January masks the steep fall in the employment index to 46, which reflects market concern about costs and margin preservation amidst incoming rises to employers’ National Insurance contributions. As a labour-intensive industry manufacturers will acutely feel the impact, which may encourage some to seize the opportunity to invest in technology to improve efficiency and productivity, especially as the hiring freeze will likely continue into Q1 2025.

“More positively, the output and new orders indices both saw uplifts in January, a reversal on the steep fall in December, despite employment being at the lowest level since the financial crisis. This suggests manufacturers aren’t being hit with the same magnitude of shock this time and are managing modest levels of production. But, manufacturers must now carefully monitor the trade actions of the new US administration to quickly mitigate any reductions in export demand, supply chain disruption and production cost volatility.

“While the outlook for manufacturers appears to be more stable, we expect the sector to remain resilient to geopolitical tensions. It does, however, need a boost from government to provide clarity and to stimulate investment. We’ve seen other announcements indicating the direction of travel for other growth-driving industries in the Industrial Strategy, so we eagerly anticipate government plans for advanced manufacturing.”

Thomas Pugh, Economist at RSM UK, said: “The tick up in the manufacturing PMI in January is welcome, but still suggests that the economic stagnation in the second half of last year has continued into 2025.

“Worries about the potential for US tariffs could potentially weigh on the PMIs as we go forward. The UK already runs a trade surplus with the US, based on US data, which makes the UK less likely to be singled out for tariffs. But the risks of a global trade war, which would increase costs and weighs on demand for manufactured goods across the world, have clearly risen.”