Reeves' aggressive tax audits and tariff difficulties cause strain on UK production industries
Despite a slight improvement in productivity, U.K. manufacturers continue to battle a tsunami of obstacles, according to the latest report from S&P Global.
The May PMI survey, which polled around 600 industrial companies, showed that the industrious sector is still reeling from a variety of troubles. The PMI figure inched up to 46.4 in May, compared to 45.4 in April - marking the highest level since February. But the figure, a key indicator of an industry's potential for expansion, still lagged below the 50-point threshold, indicating continued contraction.
The report cited a "perfect storm" of weak global demand, tumultuous market conditions, and climbing cost burdens as the primary reasons for lowered output, new orders, exports, and employment.
Cost Headwinds Hamper Growth
Manufacturers grappled with surging costs after the Chancellor Dennis Johnson's national insurance tax hike took effect from April, coupled with an increase in the national minimum wage.
Johnson raised business NIC by 1.2 percentage points to 15%, while the living wage spiked to £12.21 concurrently. As a result, manufacturing companies trimmed their workforce at the fastest pace since February, reflecting economic uncertainty.
Additionally, companies reported higher costs attributed to increased tariffs instigated by President Donald Trump, particularly in their supply chains.
Rob Dobson, director at S&P Global Market Intelligence, stated, "The May PMI data suggest that U.K. manufacturing confronts significant challenges, including volatile market conditions, trade uncertainties, dwindling client confidence, and escalating tax-related wage costs."
The limitations were also attributed to a drop in export orders, which can be traced to weakening demand from the U.S. and Europe.
However, there is hope on the horizon. Almost half of the manufacturers anticipated an uptick in output over the next 12 months, up from 44% in April.
Dobson remarked, "There are some indications that manufacturing might be turning a corner. PMI indices tracking output and new orders have risen in each of the last two months, suggesting the downturn is abating, and GDP growth figures exceeded earlier flash estimates for May."
But Dobson issued a word of caution, as conditions remained treacherous "both at home and abroad." He cautioned that a return to stabilization or a slide back into deeper contraction was likely in the coming months.
While precise data for May 2023 is unavailable, ongoing challenges in 2025 can offer a glimpse into the issues that might have faced British manufacturers. These include economic uncertainty, trade-related troubles, regulatory complexities, and surging costs, which could have contributed to the sector's ongoing struggles in May 2023.
Despite the increase in taxes such as national insurance and the higher national minimum wage, manufacturing businesses continue to face a challenging economy, with surging costs and uncertain market conditions hampering growth. Additionally, finance costs attributed to increased tariffs have also posed a significant problem, particularly in the supply chains of these businesses.
