UK manufacturing activity falls to 15-month low amidst unexpected rise in inflation

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has decreased to 46.9 from 48.3, Mike Thornton, National Head of Manufacturing at RSM UK, said: “The headline PMI decreased to 46.9 in February, remaining below 50 for the fifth consecutive month and falling to the lowest level since December 2023. This demonstrates the ongoing challenges for manufacturers and potentially the impact of the Autumn Budget on business confidence and activity. 

“The index also revealed a spike in input prices to 60 which is reflective of broader supply chain issues and cost pressures, in part following UK inflation rising more than expected to a 10-month high of 3% in January. Higher production costs will squeeze profit margins and make price rises inevitable and drive higher prices for consumers.”

He added: “But, the increase in future output to the highest level in six months (73.1) shows there is reason for the industry to be cautiously optimistic about demand with a more encouraging long-term trajectory. However, the uncertainty means that businesses need clarity and direction from government. We’re still waiting on details for the Industrial Strategy which has been pushed back until June 2025. While it’s hoped that plans for advanced manufacturing are mentioned in the upcoming Spring Statement, it can’t come soon enough as manufacturers urgently need a business environment conducive to supporting long-term growth.” 

Tom Pugh, Economist at RSM UK, said: “Another reading below 50 in February, suggests that manufacturing firms continue to struggle as economic stagnation persists into 2025.

“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. Even if direct tariffs on the UK are avoided, an increase in global trade barriers would have a stagflationary impact on the broader UK economy and especially on the UK manufacturing sector. What’s more, if the US imposes large tariffs on its other trading partners, goods that would have gone to the US will be diverted elsewhere, potentially increasing international competition for UK manufactured goods.

“In further bad news, the employment balance hit 39.5, its lowest level since the pandemic. However, the official data shows that the labour market is holding up better than suggested by the PMI surveys, so while hiring may have slowed, there has not been the collapse in employment that the surveys suggest.

“The upshot is that a weakness 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 anytime soon. The good news is that the domestic economy should recover through this year, helping to support some increase in activity.”