Factories suffer worst performance in 18 months as Labour’s tax hikes and Trump’s trade wars take their toll

Britain’s manufacturing sector is shrinking at its fastest pace for 18 months as Labour’s tax hikes and Donald Trump’s trade wars take their toll.

The slump means that the UK’s factories are mired in a worse downturn than even their counterparts in beleaguered Germany and France, according to a closely-watched survey.

In contrast, Britain’s sprawling services sector is enjoying better fortunes, pointing to the strongest growth for the overall economy in six months.

But the decline for manufacturing still represents a headache for Chancellor Rachel Reeves as she prepares to face downgraded economic forecasts in tomorrow’s Spring Statement. 

Yesterday’s purchasing managers’ index (PMI) for the UK economy in March gave a reading of 44.6 for the manufacturing sector – on a scale where the 50-mark separates growth from contraction. That was down from 46.9 in February.

Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiled the UK figures, said manufacturers as well as consumer-facing firms were ‘continuing to struggle against headwinds both at home and abroad’.

He added: ‘These headwinds include the additional costs imposed on businesses in the Budget, low confidence among businesses and households and sluggish demand at home and abroad.’

Williamson said that the latter was linked to ‘heightened geopolitical uncertainty resulting from US tariff policies’.

It comes as firms brace for the impact of Reeves’s £25billion National Insurance hike and an increase in the minimum wage – both due to take effect in early April.

At the same time, Trump has sent shockwaves through markets and upended the global trade environment by imposing swingeing tariffs on imports.

The dismal reading for UK manufacturing in March compares with a score this month of 48.3 for floundering Germany – dubbed the ‘sick man of Europe’ – and 48.9 in France.

It means that both countries’ manufacturing sectors are still shrinking, but not at the same headlong pace as they have for much of the past couple of years, and not as badly as the UK.

However, Britain’s services sector – which includes everything from law firms and accountants to bars and restaurants, and represents four-fifths of UK output – posted a reading of 53.2 for March, a seven-month high.

Williamson said that would offer Reeves ‘a respite from the recent flow of predominantly downbeat economic data’ ahead of the Spring Statement.