UK manufacturing, new orders & employment contract in Jan: S&P Global

Cost burdens also swung higher, with input price inflation rising to a two-year high.

The PMI has signalled a deterioration in overall operating conditions in each of the past four months, with its level affected by four of its five components.

Output, new orders, employment and stocks of purchases all declined, whereas average vendor lead times lengthened, a release from S&P Global said.

UK manufacturing production fell for the third month in a row in January, albeit at the slowest pace during that sequence. Weak demand and lacklustre business and consumer confidence were the main factors underlying the latest scaling back of output volumes.

The downturn was centred on the consumer goods industry where the rate of decline accelerated to its sharpest since December 2023.

The investment and intermediate goods industries were brighter spots, seeing output return to growth for the first time in three and four months, respectively.

The level of incoming new business decreased for the fourth straight month in January.

There were reports that changes to minimum wage legislation and employer national insurance contributions announced in last year's Budget were raising concerns about costs and reducing confidence, leading to cutbacks in non-essential expenditure at manufacturers and their clients alike, S&P Global Ratings noted.

Conditions remained weak in both domestic and overseas markets at the beginning of 2025. New export business has now fallen throughout the past three years, with reports of lower intakes of new work from the European Union and the Middle East during the latest survey month.

Data on output and new orders broken down by company size signalled that the retrenchments in both variables hit small-sized manufacturers the hardest. Downturns were also signalled for medium-sized firms, whereas production and new order intakes moved back into expansion territory for large companies.

A similar picture was painted for the labour market, with rates of job loss steeper at small- and medium-sized firms compared to the cuts made in the large size category.

January saw the overall level of employment in the UK manufacturing sector decrease for the third successive month. Moreover, the rate of decline was the quickest since February 2024.

There were reports of redundancy programmes, natural attrition and workforce restructuring being implemented to reduce costs.

Signs of excess capacity and low levels of business optimism also contributed to the latest reduction to staff headcounts. Backlogs of work fell for the thirty-third month running, with small-sized manufacturers making the largest inroads into work-in-hand, although declines were also seen at medium and large companies.

Optimism amongst manufacturers remained at one of its weakest levels over the past two years, recovering only mildly from the 24-month low hit in December. Lacklustre sentiment was blamed on government policy, recession fears, rising costs, higher interest rate expectations and cutbacks to non-essential spending.

January saw a resurgence in price pressures, with input costs and output charges both rising at accelerated rates.

Supply chains remained under duress in January. Increased shipping times, the Red Sea crisis, backlogs at ports, container shortages and regulatory issues all contributed to longer lead times.

ALCHEMPro News Desk (DS)