Cost increases from the Budget and concerns over a potential trade war hit manufacturers.
Manufacturing job cuts happened at the fastest rate since 2020 last month as rising taxes and inflation pushed up factory costs and output hit a 14-month low amid fears over trade tariffs.
The S&P Global UK manufacturing PMI survey, watched closely by economists, recorded a reading of 46.9 in February, from 48.3 in January.
Any reading above 50 indicates activity is growing while any score below means it is contracting.
The survey has been less than 50 for five consecutive months.
Factories have been hit harder than some other parts of the economy by increases to employer taxes announced in the October Budget, with bosses citing them as a driver of rising costs.
Chancellor Rachel Reeves raised company national insurance contributions in a move to fund improvements to public services.
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The measures, along with an increase in the minimum wage, are set to take effect in April, with factories responding with redundancies, working hours reductions, and opting not to replace people leaving.
Rob Dobson, director at S&P Global Market Intelligence, said the cost increases are “driving up inflation fears and intensifying the downward trend in staff headcounts.”
Manufacturers are also facing increasingly poor demand, with fewer orders, subdued confidence among customers, and supply chain issues, domestically and overseas.
Nonetheless, business optimism hit a six-month high in February, with improved sentiment attributed to investment spending and hopes that economic conditions would strengthen.
Tom Pugh, an economist at consultancy RSM, said, “A combination of weak growth in our major trading partners such as France and Germany, combined with uncertainty around U.S. tariffs, and therefore a potential global trade war, continues to weigh heavily on manufacturing firms.”
He added that the 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 any time soon.”
“The good news is that the domestic economy should recover through this year, helping to support some increase in activity.”
