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UK Private Sector Growth Reaches Six-Month Peak Amid Trade Uncertainty
In March, private sector output growth in the UK surged to a six-month high, primarily driven by the services sector. This upswing in activity comes as services companies express confidence about evading the anticipated second wave of trade tariffs proposed by Donald Trump, set to take effect next month.
The latest data presents a favorable scenario for Rachel Reeves ahead of the upcoming spring statement, with services companies reporting an increase in order books for the first time this year, attributed to a rise in both domestic and international sales.
The S&P UK PMI composite output index, which is an indicator of private sector activity, climbed to 52.0 in March, marking a notable uptick from the 50.5 recorded in February and the highest level since last September.
Specifically, the services sector—a segment shielded from the impending US tariffs on goods—witnessed growth, reaching 53.2 up from 51.0 the previous month. In contrast, the manufacturing sector experienced a downturn, with activity dipping to 44.6 from 46.9 in February, indicating contraction as anything below 50 signals a contraction phase.
Manufacturers have cited “significant challenges,” including rising tariffs and a wave of global economic uncertainty. These firms reported their lowest confidence levels since November 2022, a stark contrast to the rising optimism observed among service providers, which reached a five-month peak.
The report notes that subdued international demand has led to the most significant decline in manufacturing export sales since August 2023, alongside the steepest drop in production volumes experienced in nearly a year and a half.
Concerns are mounting within the manufacturing sector regarding a potential further downturn as the global economy braces for the next set of trade tariffs anticipated from the White House.
Many manufacturers are dependent on imports for components and raw materials, and they foresee challenges in exporting finished goods to markets that may be impacted by tariffs, potentially increasing costs and delays.
President Trump had been poised to unveil sector-specific tariffs on various goods including automobiles and semiconductors. However, reports now suggest that these announcements may not happen on April 2—a day Trump has referred to as “Liberation Day” for the US, according to the Wall Street Journal.
While the White House is still preparing to announce reciprocal tariff measures on that date, the planning is reportedly still fluid. Trump hinted last week at a possible flexible approach to these tariffs.
According to S&P Global, the declining outlook for the manufacturing sector has led to reduced investment and job cuts as producers navigate a challenging business climate.
Chris Williamson, chief business economist at S&P Global Market Intelligence, tempered expectations regarding the March improvements. He emphasized that while the growth in service sectors offers some relief amid predominantly negative economic indicators, it does not signify a definitive recovery.
Rob Wood, the chief UK economist at Pantheon Macroeconomics, echoed this sentiment, arguing that the PMI data may be overly pessimistic about the economy’s state. He predicted economic growth would likely rebound in the first quarter, despite a slight decline in January.
Looking forward, Wood projected that growth would remain modest throughout the year, clarifying, “Overall, growth this year looks likely to be steady rather than spectacular as the impacts of previous interest rate hikes, tighter fiscal policies, and ongoing geopolitical uncertainties weigh on economic activity.”
Source
www.theguardian.com