UK Flash Manufacturing PMI Falls to 46.4 as Services Hit 2-Month High at 51.1

Private Sector Output Stalls

UK private sector employment fell at its fastest rate since November 2020, according to the S&P Global Flash UK PMI® report for February 2025. The Flash UK PMI Composite Output Index registered 50.5, down slightly from January’s 50.6, indicating only marginal growth and highlighting persistent challenges in the economy.

Service Sector Gains Fail to Offset Manufacturing Slump

While the services sector showed resilience with the Business Activity Index rising to 51.1, a two-month high, the manufacturing sector struggled. The Manufacturing Output Index dropped to 47.4 from 49.2, marking a two-month low, and the broader Manufacturing PMI fell to 46.4, its lowest in 14 months. This divergence highlights the limited strength of services to counterbalance a deepening manufacturing downturn.

Employment and Cost Pressures Intensify

Employment across the private sector declined sharply as companies reacted to weak demand and high payroll costs. Many firms indicated non-replacement of departing staff, driven by automation initiatives and a focus on boosting productivity. Input cost inflation rose for the fourth consecutive month, driven by higher wages and the impending increase in employers’ National Insurance contributions. Manufacturing companies also pointed to escalating raw material and energy costs, leading to the highest purchasing price inflation in 25 months.

Demand Weakness Weighs on Growth Prospects

The report signaled the fastest decline in new work since August 2023, with both domestic and international sales weakening. Export orders dropped at their quickest pace since August 2023, with reduced demand from the EU and the US. Many firms cited client budget cuts and restrained business investment, contributing to reduced backlogs of work for the 22nd month in a row.

Market Forecast: Bearish Sentiment Expected

Given the accelerating downturn in manufacturing, rising input costs, and the sharp drop in employment, the near-term outlook for the UK market appears bearish. While service sector growth offers a glimmer of hope, the broader economy is showing signs of stagflation. Traders should remain cautious, particularly regarding manufacturing and export-oriented stocks, as the likelihood of reduced business activity looms unless demand recovers swiftly.