Britain’s manufacturing output has slipped into reverse gear for the first time since 2016, triggering fresh alarm over the health of one of the economy’s core industrial pillars.
According to the industry body Make UK, activity among manufacturers fell sharply from January to March, an “ominous” sign made all the more striking by the fact that production is typically higher in the first quarter of a calendar year.
Verity Davidge, policy director at Make UK, said manufacturers were “wading through treacle” as they coped with rising payroll obligations, increased employment taxes, and a deteriorating global trade environment. The sector, which represents less than 10 per cent of the UK’s gross value added, has been mired in recession for three years, having been hit by spiralling energy costs in the wake of Russia’s invasion of Ukraine.
Fresh data collated by Make UK and professional services firm BDO shows an index of manufacturing activity sliding from +20 to -1, the worst start to a year since 2016, when Britain’s vote to leave the European Union roiled markets. Stephen Phipson, Make UK’s chief executive, warned that a slump in both domestic and export orders is now forcing manufacturers to rethink staffing. Plans for recruitment have been shelved, and many companies are contemplating redundancies.
The trouble is set to deepen. Overall manufacturing output is expected to shrink by 0.5 per cent this year, a more pronounced drop than the 0.2 per cent decrease posted in the final quarter of 2024. Compounding the slowdown is a broad-based retreat in business confidence, partly driven by the imminent rise in employers’ national insurance contributions and the hike to the national living wage.
Make UK’s survey shows employment readings have dipped into negative territory for the first time in four years, with 27 per cent of firms expecting to reduce headcount, while almost half say they plan to freeze hiring to keep costs in check. One in four businesses indicates they will scale back planned pay increases as they grapple with higher taxes—hikes that Make UK says will add roughly £1,000 per staff member in additional costs.
Overseas headwinds are also hitting British industry, especially since the United States increased tariffs on UK steel and aluminium exports. Further strain could follow if the US delivers on threats to impose new reciprocal levies on British goods in retaliation against the UK’s VAT regime.
The UK government’s decision not to impose its own retaliatory tariffs stands in stark contrast to the approach of other major economies. Ministers are instead pursuing a limited trade arrangement to secure exemptions from Washington’s punitive measures, although success is far from guaranteed.
Richard Austin, head of manufacturing at BDO, argued that the best route to a turnaround lies in offering “targeted support” to assist manufacturers with trade flows and capital investment. Phipson agrees, calling for “a shift in mindset across government” to sustain industry through these turbulent times.
Whether official help will come quickly enough to avert a deeper crisis remains to be seen. For now, British manufacturers face a potent combination of rising input costs, global trade ructions, and higher taxes—prompting fears that 2025 could be another year stuck firmly in the economic slow lane.
