UK Services Surge to 7-Month High as Manufacturing Hits 18-Month Low on Export Weakness

UK Flash PMI: Services Rebound Offsets Manufacturing Slump

UK private sector activity accelerated in March, driven by the strongest services growth since August 2024, while manufacturing contracted sharply. The divergence between sectors underscores contrasting demand trends, with implications for the pound and rate expectations.

Services Lead with Broad-Based Demand Recovery

The S&P Global Flash UK Services PMI rose to 53.2 in March from 51.0 in February, a seven-month high. Improved domestic and overseas sales contributed to this expansion, with some firms noting a tentative return in consumer demand. It marked the first time in 2025 that service providers reported growth in new work, signaling recovering momentum despite ongoing geopolitical and cost headwinds. Wage-driven input inflation remained elevated in services, and rising costs were passed on through output prices, adding to broader inflation concerns.

Manufacturing Under Pressure from Export Weakness and Global Risk

In contrast, the Flash UK Manufacturing PMI fell to 44.6, down from 46.9 in February—its lowest since October 2023. Export-led weakness was pronounced, with the fastest decline in international sales since August 2023. Potential US tariffs and broader global economic uncertainty continue to weigh on sentiment and order books. Production volumes saw their steepest contraction in nearly 18 months, with factories reporting falling output for the fifth straight month. Input costs rose, particularly in raw materials like metals, with factory gate inflation reaching its highest since April 2023.

Labor Market Trends Reflect Cautious Hiring

Private sector employment dropped for the sixth month running, reflecting cost concerns and restructuring. However, job losses eased, especially in services, as firms adjusted hiring plans in light of automation and wage pressures. Despite easing inflation from January highs, input costs remained well above the historical average, supporting continued price pressures across both sectors.

Diverging Sector Confidence Underscores Market Risks

Business confidence remains fragile. Manufacturers reported the weakest sentiment since late 2022, citing concerns over trade, US tariffs, and demand. Services firms were moderately more optimistic, pointing to gradual sales recovery. However, firms across both sectors flagged geopolitical risks, client caution, and upcoming domestic cost pressures, including National Insurance hikes in April.

Market Forecast: Bearish on Manufacturing, Neutral-to-Bullish on Services

The data points to a bearish short-term outlook for UK manufacturing, with headwinds from trade policy and global uncertainty likely to persist. In contrast, the services sector shows a neutral-to-bullish tone, with recovering demand supporting broader private sector stability. However, persistent inflation and weak business confidence suggest limited upside for the overall economy and may keep the Bank of England cautious on rate adjustments. Traders should monitor US tariff decisions and April’s fiscal changes for further directional cues.