UK manufacturers hit with worst export slump since pandemic

UK manufacturers saw the sector's downturn continue last month as demand from overseas customers sliumped to the worst level in almost five years. 

The April reading of the purchasing managers' index (PMI) survey from S&P Global improved to 45.4 from 44.9 the month before and better than the preliminary reading of 44. 

However, April saw a further contraction in manufacturing output, though it was less than the fall in March, while new orders and exports also decreased, leading to business confidence declining to its lowest ebb since late 2022, the research found.

Domestic demand remained soft, but overseas demand was "especially weak", S&P said, with new export business falling at the quickest pace for nearly five years, with demand from the US, Europe and mainland China all declining.

Companies reported that rising economic and trade uncertainties, notably from US tariffs, had drained confidence from corporate clients and resulted in a reluctance to commit to new contracts.

New business received by manufacturers contracted for the seventh month in a row.

"The start of the second quarter saw UK manufacturing buffeted by adverse global market conditions, rising cost pressures, deteriorating supply chains and increased trade uncertainty," said Rob Dobson, director at S&P Global Market Intelligence.

"Manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility," he added, with companies also seeing purchase price inflation hitting a 28-month high and higher domestic inflationary pressure from increases to National Insurance and minimum wages.

"These increased costs are resulting in a combination of higher selling prices and cutbacks to non-essential spending on staffing and purchasing, potentially reinforcing the 'rising costs, declining demand' backdrop," he said.

The PMI has a tendency to respond to shifts in sentiment rather than activity, which may be overstating the weakness, Matt Swannell, chief economic advisor to the EY ITEM Club, but he said the sector certainly has a challenging outlook.

"Global trade disruption and uncertainty has clearly weighed on the sector, with survey respondents reporting a marked fall in demand from key export markets," he said. 

"Although the extent of recent weakness in the PMI should be taken with a pinch of salt, US tariff announcements nonetheless present a challenging outlook for the manufacturing sector.

"Reduced access to a key international market and a weaker world economy will hinder exports, while lingering uncertainty points to a period of more subdued domestic demand."

The survey also suggests companies are responding to employment cost increases from minimum wages and NICs by reducing headcount and increasing prices quite significantly, "posing a dilemma for the Bank of England, which will likely look to balance the pace of interest rate cuts with evidence that inflationary pressure is easing".

That said, Swannel said a cut in interest rates next week "appears almost certain".