UK economic activity contracts for first time in 18 months

The S&P Global UK Composite PMI dropped sharply to 48.2 in April 2025 from 51.5 in March, marking the first contraction in private sector activity since October 2023 and falling well short of market forecasts of 50.4. This flash estimate highlights growing fragility in the UK economy, as both manufacturing and services sectors suffered notable declines.

UK economic activity contracts for first time in 18 months

Manufacturing output continued to struggle, with the index slipping to 44 from 44.9, remaining firmly in contraction territory. More surprisingly, the services sector—previously a bright spot—fell into contraction for the first time in 17 months, with a reading of 48.9 compared to 52.5 in March. The drop points to widespread softness in domestic demand and heightened caution among consumers and businesses alike. A fifth consecutive month of declining new orders, particularly from overseas clients, underlines the growing external pressures facing UK firms. Export-oriented manufacturers blamed the ongoing uncertainty surrounding U.S. trade and tariff policies, which have disrupted key supply chains and reduced demand from North American customers. Meanwhile, labor market pressures intensified. Rising payroll costs, driven by the recent hike in the minimum wage and increased National Insurance contributions, continued to weigh on firms’ bottom lines. In response, businesses scaled back hiring for the seventh straight month, contributing to an overall softening in employment across both sectors.

Input prices also remain elevated

Input prices also remained elevated, suggesting that inflationary pressures have not fully abated, even as demand falters. This combination of weakening demand and persistent cost pressures has led to a notable decline in business confidence. The business expectations index—a gauge of future sentiment—dropped to its lowest level since early 2023. Both manufacturers and service providers reported growing anxiety over future economic conditions, citing not only domestic cost burdens but also the broader backdrop of geopolitical instability and trade policy uncertainty. As the Bank of England prepares for upcoming monetary policy decisions, April’s PMI data may add urgency to calls for rate cuts or fiscal interventions to support growth and ease cost burdens on UK businesses.