April data from the S&P Flash UK PMI ® survey indicated a decline in private sector output for the first time in a year and a half. Weak demand from global markets weighed on business activity in the manufacturing and services sectors. The latest figures indicated that total new business from abroad fell sharply and at the fastest pace in nearly five years. Respondents to the survey commented widely on the negative impact of U.S. tariffs and what It was followed by a decline in customer confidence.
Expectations for business activity among UK private sector companies also fell in April. The level of optimism towards the outlook for next year fell to its lowest level since October 2022. Several respondents cited concerns about the deteriorating global economic outlook in the wake of U.S. tariffs, as well as declining confidence about the outlook for domestic business conditions.
The seasonally adjusted UK composite global PMI came in at 48.2 in April, down from 51.5 in March, marking a reading below the neutral value of 50.0 for the first time since October 2023. Although the latest reading indicates a modest rate of decline, it was the lowest since November 2022.
Service providers recorded a slight decline in business activity in April, ending a 17-month expansion period. Growing global economic uncertainty and weak domestic demand were cited as major factors affecting production. Manufacturers recorded a decline in production volumes for the sixth consecutive month.
The latest decline was the sharpest since August 2022, and was widely attributed to weak market conditions, particularly in key export destinations. Total new business received by private sector companies in the UK fell for the fifth consecutive month and at a steady rate in April.
Business confidence declines, employment slows in Britain
Anecdotal evidence suggests that uncertainty over U.S. tariffs and general concerns about the economic outlook have encouraged customers to take a wait-and-see approach to key spending decisions. This has led to the fastest decline in new business from abroad since May 2020. Manufacturing export sales have been hit particularly hard by escalating global trade tensions. Regardless of the pandemic, the recent decline in new orders from abroad in the manufacturing sector was the sharpest since February 2009.
Lower workloads and higher salary costs contributed to a reduction in UK private sector employment in April. Employee numbers have now declined for seven consecutive months, reflecting continued layoffs in both the manufacturing and service sectors. Respondents widely indicated that tight profit margins led companies to choose not to replace departing employees.
Finally, business outlook for business activity has declined significantly in both the manufacturing and services sectors, with levels of public confidence at their lowest levels in two and a half years. Most respondents attributed weak business confidence to the increased risk of a recession domestically and internationally. Many companies reported a negative impact on growth expectations due to US trade tensions, growing geopolitical uncertainty, and general concerns about the UK business climate.
Chris Williamson, chief business economist at S&P Global Market Intelligence, commented on the preliminary PMI data: “UK businesses faltered in recent months and generally stagnated after last autumn’s budget. In April, companies struggled to maintain stability.
The decline in production in April was the largest in nearly two and a half years, which is in line with a quarterly decline in GDP of 0.3%, reflecting lower activity and demand in the manufacturing and services sectors.
How does the manufacturing PMI affect the UK economy in general?
Purchasing Managers’ Index (PMI) affects the UK economy in many ways:
Growth forecast: PMI is a leading indicator that reflects the health of the manufacturing sector. A reading above 50 indicates growth, while a reading below 50 indicates contraction, helping to predict economic trends.
Investor confidence: Good PMI data boosts investor confidence, which can lead to increased investments in stocks and bonds, thereby supporting economic growth.
Impact on monetary policies: The Bank of England uses PMI data to assess the economic situation. Strong readings may push him to raise interest rates, while weak readings may lead to lower them.
Employment Trends: PMI changes indicate new employment trends. Manufacturing growth could lead to increased employment, while contraction could lead to layoffs.
Impact on prices: PMI also affects price pressures. If there is strong growth, inflation may rise, affecting economic decisions.
Impact on trade: PMI can reflect domestic and international demand, affecting the balance of trade. Strong data may point to increased exports, while weaker demand could lead to a decline.
Changes in the business environment: external factors such as economic crises or political changes can influence readings.
Regional changes: Differences in the performance of different sectors within the country can affect the PMI reading.
Data for other indicators: Comparisons with other economic indicators, such as GDP and employment, can enhance understanding of readings.
Inventory levels: Inventory changes reflect a company’s strategy in dealing with demand. Increased inventory may indicate weak demand, while a decrease may indicate strong activity.
Future signals: Focusing on current trends can help predict the future performance of the economy.
In general, PMI is an important tool for analyzing the economic situation in the UK and guiding investment policies and decisions.
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