UK Manufacturing Shrinks as Exports Dry Up Amid Tariffs Shock

gdxqh6j0})0{wff326i}4fg5_media_dl_1.png S&P Global

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(Bloomberg) — UK factories were hit by the biggest plunge in overseas orders in five years as a global trade war outbreak sapped demand from the US, Europe and China, according to a closely watched survey.

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S&P Global’s purchasing managers’ index showed the manufacturing sector remaining deep in contractionary territory despite a slight improvement to a reading of 45.4 in April, above the flash estimate of 44 and up from 44.9 in March. 

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The survey revealed the pressure mounting on factories from Donald Trump’s sweeping tariffs, a stagnant domestic backdrop and higher employment costs following a hike in payroll taxes. Business optimism tumbled to the lowest in almost 2 ½ years, jobs were cut at the second-sharpest pace since the pandemic and cost pressures jumped.

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“Surveyed manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility,” said Rob Dobson, director at S&P Global Market Intelligence. “Manufacturers are also seeing an increasingly harsh cost environment.”

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Economists expect the US tariffs to be disinflationary for the UK by dampening global demand and redirecting trade, as exporters that previously sold in the US, particularly in China, seek alternative markets at a discount. However, the PMI survey suggested that the tariffs may be contributing to price pressures in the manufacturing sector.

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High energy prices, increased staff costs and supply-chain uncertainty caused by the tariffs were blamed for the sharpest jump in purchase prices since December 2022. Factories raised their own prices at the steepest pace in over two years.

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Bank of England rate-setters have been wary of predicting that tariffs will push down inflation, partly because it could cause supply chain disruptions if US importers rush to find substitutes for goods from countries facing the highest tariffs. Firms could also stockpile goods in case a higher tariff is introduced in future.

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