British manufacturers endured a turbulent March amid the twin pressures of hefty tariffs and looming tax increases at home that undercut new orders and eroding optimism, according to a recent business survey. The S&P Global UK Purchasing Managers’ Index (PMI) for manufacturing, which measures activity in British factories, slumped to its lowest since October 2023 when Britain was in recession, dropping to 44.9 in March from 46.9 in February.
Despite S&P Global revising initial estimates for manufacturing activity in March 2025 to 44.9 from an initial estimate of 44.6, the survey revealed an acceleration in the collapse of orders at the fastest rate since August 2023.
The results remained the lowest reading in 17 months, down from 46.9 in February. The UK manufacturing downturn continued as output fell and new orders accelerated.
Trifecta of rising costs, geopolitical tensions and tariffs
Meanwhile, business confidence slumped over concerns about government policy, rising costs, geopolitical tensions and tariff uncertainty that are expected to erode current and expected future conditions.
“Manufacturers reported a tough trading environment, beset by rising geopolitical tensions, weak client confidence and economic slowdown in both domestic and overseas markets,” the PMI report said.
Falling export orders were “mainly linked to weaker demand from the U.S. and Europe”, S&P Global said.
However, the survey showed only 44% of manufacturers expected to see output increase over the coming year, down from 56% a month earlier.
Falling export orders were “mainly linked to weaker demand from the U.S. and Europe”, S&P Global said.
The data released last week also showed British industrial output shrank 1.2% last year.
Production and services contribution to economic output
In the Office of National Statistics’ (ONS) consolidated snapshot of the UK economy, monthly production output was estimated to have fallen 0.9% in January 2025. This followed a rise in December 2024 (up 0.5%) and a fall in November 2024 (down 0.5%).
Softer performances in manufacturing (down 1.1%) and mining and quarrying (down 3.3%) eroded production performance. However, this was partially offset by increases in water supply and sewerage (up 2.6%) and electricity and gas sectors (up 0.5%).
Monthly production output in January 2025 was at its lowest level since May 2020.
Production output for the three months to January 2025 was estimated to have decreased by 0.9% compared with the three months to October 2024, representing the ninth consecutive three-monthly decline in production output.
Service sector offers glimmers of optimism
The preliminary PMI readings published on 24 March revealed a rosier picture for the much larger services sector, where output increased at the fastest pace for seven months.
The ONS index of service data reinforced this, with a third successive month of growth for the services sector as output edged up 0.1% in January 2025. Increases in both November 2024 and December 2024 were 0.2% and 0.4% respectively.
There were monthly increases in six of the 14 sectors in January 2025, with the largest positive contribution from administrative and support service activities (up 1.9%).
The monthly increase in output was partially offset by monthly decreases in 7 of the 14 sectors in January 2025; the largest negative contribution came from accommodation and food service activities (down 2.4%).
Supply chain worries
Nearly a third (32%) of businesses with 10 or more employees reported they had some form of concern about their supply chains over the next 12 months, according to ONS data from late March. This was up 2 percentage points from late December 2024 and up 5 percentage points since September 2024.
Of those with supply chain concerns, 53% expect to be impacted by the increased costs of sourcing materials, up 6 percentage points from late December 2024.
Climate takes back seat as AI-uptake accelerates
Nearly three in five (58%) businesses were not concerned about the impact of climate change on their business, in line with survey results in December 2024.
They expressed more enthusiasm for artificial intelligence (AI), with more than one in six (18%) businesses reporting they are currently using some form of artificial intelligence (AI) technology. This is up 8 percentage points since September 2023. For businesses with 250 employees or more, this increased to 31%, up 13 percentage points compared to September 2023.
More than three-quarters ( 77%) of businesses were not planning to adopt AI in the next three months, down 3 percentage points since December 2024. The transport and storage, and construction industries had the largest proportion of businesses not embracing AI at 87% and 86% respectively.
On the issue of debt, 59% of businesses reported a high or moderate level of confidence they will be able to meet their current debt obligations, while 3% had low or no confidence. Some 28% reported they currently have no debt obligations, down 3 percentage points over the same period.
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