The UK manufacturing PMI for February stands at 46.9, revised from a preliminary 46.4, marking the lowest level in 14 months. This decline is accompanied by significant job losses, the steepest since mid-2020, as output and new orders are decreasing at an accelerated rate.
Manufacturers are facing low demand and client confidence, alongside rising cost pressures. Changes in the national minimum wage and employer NICs are contributing to inflation concerns, which are affecting employment levels negatively.
Rising Costs And Reduced Purchasing
As costs rise at the fastest rate in over two years, purchasing activities and stock levels are being reduced. The current economic climate poses challenges for the Bank of England due to stagnant growth and escalating prices.
This latest PMI reading confirms that factory output is contracting at a pace not seen in over a year. A downward revision only reinforces that conditions are deteriorating. When production weakens this way, it suggests that businesses are scaling back, either due to weaker sales, rising overheads, or a mixture of both. Job losses deepening to levels last recorded in 2020 point to a sector shedding roles at a worrying speed. That was a time of historic disruptions, something that makes this trend particularly telling.
Declining new orders further solidify the argument that confidence remains low. Fewer incoming purchases signal that firms are hesitant to commit to future activity. That lack of appetite for goods, whether from domestic buyers or international customers, does not happen in isolation. It goes hand in hand with broader economic concerns. When businesses see weaker demand ahead, they often react by cutting back on workforce numbers to manage costs. That is precisely what we are witnessing.
Pressure on company expenses is mounting. A higher minimum wage, alongside increased employer NICs, only adds to those worries. These policies, while intended to support wages, also translate into added financial strain for businesses, particularly for those already grappling with weak sales. Any upward force on wages can lead some to rethink hiring plans or even look for ways to trim existing payrolls. While these factors are policy-driven, they intersect with existing inflation challenges, compounding pricing pressures across supply chains.
Monetary Policy Challenges
The speed at which input costs are climbing is now the fastest in over two years. This creates another dilemma for businesses, who must decide whether to pass on these extra expenses to customers or absorb them at the expense of already pressured margins. Increased caution over spending is reflected in purchasing activity. When firms scale back orders for raw materials, it is often a sign that they expect subdued demand to continue. Running down stock levels suggests a reluctance to hold excess inventory, which ties up capital that might be needed elsewhere.
At a broader level, this presents a challenge for monetary policy. Stagnant growth paired with rising costs puts decision-makers in a difficult position. Price pressures would normally support the argument for keeping policy tight, yet weak output does the opposite, calling for potential easing. The balance between these factors will need to be monitored closely in the coming weeks.
