UK factory activity contraction softens

The S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) edged up to 47.7 in June 2025, improving from 46.4 in May.

This reading, which matched the flash estimate and exceeded initial market forecasts of 46.6, marks the softest contraction in the UK’s manufacturing sector since January. While the sector remains in contractionary territory (below the 50.0 threshold), the latest figure indicates a tentative stabilization in conditions and aligns with a broader pattern of modest recovery across the Eurozone, where industrial output has similarly shown signs of bottoming out.

The slower pace of decline in June was primarily driven by a less severe drop in new orders, which registered their mildest fall in the current nine-month downturn. Although this provided some cushion to overall activity, output levels continued to shrink, as many manufacturers adjusted production downward in response to subdued demand and persistent market headwinds.

Firms cited a range of challenges underpinning the fragile demand environment, including uncertainty over domestic economic policy, ongoing geopolitical tensions, and tariff-related disruptions that have clouded the near-term outlook. In particular, export demand remained under pressure, with notable declines in orders from key markets such as the United States, the European Union, and China. This drop in external demand reflects both structural trade frictions and cyclical slowdowns in those economies.

As a result of prolonged weakness in output and orders, manufacturers continued to shed jobs, marking the eighth consecutive month of employment declines in the sector. The scale of workforce reductions was moderate but still indicative of efforts by firms to streamline operations and contain costs in the face of sustained margin pressures.

On the inflationary front, input prices increased for the 18th month in a row, driven by higher shipping rates, elevated labor costs, and residual supply chain inefficiencies. Though the pace of cost inflation has moderated compared to earlier peaks, it remains a concern for producers, many of whom have opted to pass on part of the burden to customers via higher output prices.

Despite the glimmers of improvement, the overall picture remains one of cautious optimism, with the June PMI data suggesting that while the UK manufacturing sector may be moving toward stabilization, a full recovery remains elusive. Much will depend on improvements in business confidence, policy clarity post-election, and a sustained rebound in both domestic and external demand in the second half of the year.