The latest UK Global Purchasing Managers’ Index (PMI) survey from Standard & Poor’s indicated that business activity expansion in the private sector gained momentum in March, driven by the fastest recovery in the services economy since August 2024. The growth of the services sector was boosted by renewed improvements in domestic and international sales.
Manufacturers faced strong demand headwinds as a result of growing global economic uncertainty and the prospect of U.S. tariffs. Weak international demand led to the fastest decline in manufacturing export sales since August 2023. Moreover, manufacturers reported the sharpest decline in production volumes in nearly a year and a half.
The S&P Global Flash UK’s seasonally adjusted headline composite Purchasing Managers’ Index (PMI) came in at 52.0 in March, up from 50.5 in February, surpassing the crucial 50.0 mark for the seventeenth consecutive month.
Although the latest reading indicates a slight improvement in total private sector business activity, it was the highest since September 2024.
A strong pace of business activity growth in the services sector helped offset the biggest decline in manufacturing output since October 2023. Manufacturers have now reported a decline in production for the fifth consecutive month.
The March data also pointed to mixed trends in new order volumes. Producers of goods recorded a sharp decline in total sales due to exports, while service providers reported an increase in new business for the first time since 2025 to date. Some service providers commented on a temporary improvement in demand conditions, especially on consumer services. However, companies also cited demand headwinds due to geopolitical uncertainty, delayed investment decisions among customers, and unnecessary spending cuts.
Decline in employment and inflationary pressures in the private sector
Private sector employment fell for the sixth consecutive month. Respondents were broadly supportive of business restructuring, investments in automation, and not replacing departing employees in response to rising salary costs. However, the pace of job losses has slowed significantly since February, particularly in the services sector.
Input cost inflation fell further from a nine-month high in January, but remained well above the long-term survey average. Service providers recorded much greater rise in input prices than manufacturers, largely reflecting severe pressure on wages and suppliers’ efforts to bear the high salary costs.
Manufacturers also noted that vendors sought to bear high recruitment costs and higher prices for raw materials (especially metals).
Subsequently, significant increases in average prices levied across the private sector economy were recorded in March. The overall rate of production cost inflation remained unchanged since the previous month. A slight slowdown in the services sector offset retail price inflation accelerating to its highest level since April 2023. Anticipated increases in national insurance contributions and the national minimum wage were cited as the main reasons for the rise in product prices, but there were also sporadic reports of discounts to stimulate sales.
Finally, the latest survey indicated that the overall business activity outlook for next year remained close to the 25-month low recorded in January. Manufacturers cited the weakest confidence score since November 2022.
However, optimism among providers rose to a five-month high. Services sector companies reported a gradual improvement in sales opportunities and organic growth expectations, despite lingering concerns about restricting business investment and the impact of higher salary costs on customer demand. In the manufacturing sector, there were many concerns about US tariffs and a gloomy outlook for export sales due to volatility in global markets.
How does the spot 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.
