Confidence among British manufacturers has plunged to its lowest level in two years, reflecting a steep drop in exports and mounting global trade tensions, according to the latest data from S&P Global.
The manufacturing purchasing managers’ index (PMI) slipped to 47 in December, down from 48 in November, marking an 11-month low.
This revised figure also fell below the preliminary estimate of 47.3. For the third consecutive month, the PMI remained below the critical 50 threshold that separates growth from contraction.
Optimism Sinks Across All Business Sizes
S&P Global’s sub-index tracking future activity optimism showed a significant decline, hitting a two-year low. Manufacturers cited escalating costs and a weaker economic environment as key reasons for the drop in confidence.
Export sales experienced their fastest decline in 10 months, exacerbated by weakening demand from Europe, Asia, and the United States.
The Labour government’s recent payroll tax increase added to the sector’s woes, leading to the sharpest job cuts since February, according to Rob Dobson, Director at S&P Global Market Intelligence.
“The new tax policy sent a winter chill through the labour market,” said Dobson.
Global Challenges Intensify Pressures
Manufacturers are increasingly feeling the effects of a deteriorating global trade environment. Rising protectionist rhetoric, particularly from US President-Elect Donald Trump, who has pledged sweeping import tariffs, has further dampened the outlook.
“Global market conditions are providing a growing headwind,” Dobson noted, pointing to declining export demand from key regions.
The figures underscore the UK’s economic struggles at the close of 2024, following a marked slowdown in growth since Labour assumed power in July. Gross Domestic Product (GDP) was flat in the third quarter, and the Bank of England anticipates no growth in the fourth quarter either.
Contrasting Growth Patterns and Survey Cautions
The current stagnation sharply contrasts with the UK’s robust performance in the first half of the year, during which it nearly matched the fastest growth rates among G7 nations. However, some economists suggest that the manufacturing survey may overstate the sector’s challenges.
“PMI results can be heavily influenced by business sentiment swings,” said Matt Swannell, Chief Economic Adviser at the EY Item Club. “The initial negative reaction to the autumn Budget might be exaggerating the sector’s loss of momentum.”
While challenges persist, the extent to which sentiment-driven data reflects actual economic activity will become clearer in the months ahead. The manufacturing sector faces a critical period as it navigates domestic policy changes and global trade uncertainties.
