UK private sector output growth climbed to a six-month high in March, powered by services companies that expect to avoid Donald Trump’s second wave of trade tariffs next month.
In a boost to Rachel Reeves before the spring statement on Wednesday, services companies said order books increased for the first time this year after a sustained rise in domestic and overseas sales.
The S&P UK PMI composite output index, which tracks private sector activity, rose to 52.0, the highest since last September, and up from 50.5 in February.
The services sector, which is not exposed to looming US tariffs on goods, increased to 53.2 in March, from 51.0 in February. But factory owners were more downbeat and registered a fall in activity to 44.6 from 46.9 in February, where a figure of 50 separates contraction from expansion.
Manufacturers said they faced “severe headwinds” including tariffs and rising global economic uncertainty. They reported the weakest degree of confidence since November 2022, contrasting with the confidence levels shown by service providers, which edged up to a five-month high.
The report said: “Weak international demand resulted in the fastest decline in manufacturing export sales since August 2023. Moreover, manufacturers reported the steepest downturn in production volumes for nearly one-and-a half years.”
Businesses across the manufacturing industry fear a further downturn as the global economy reacts to the next round of trade tariff measures promised by the White House.
Most manufacturers rely on imports of components and raw materials and they expect to export finished goods to countries that could be hit by tariffs, raising costs and possibly causing delays.
Trump was expected to announce sector-specific tariffs on a range of goods, including cars and semi conductors. However, they are now not likely to be announced on 2 April – which Trump has dubbed “Liberation Day” for the US – the Wall Street Journal reported.
The White House is still planning to announce reciprocal tariff measures on that day, although “planning remains fluid”, the paper reported. Trump hinted last week that he could take a flexible approach to tariffs.
S&P Global said factory owners were cutting back investment and laying off staff as the outlook for the sector appeared to weaken this year.
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Chris Williamson, the chief business economist at S&P Global Market Intelligence, played down the significance of the broad improvement in March. He said that while services companies offered the chancellor some respite from the recent flow of predominantly downbeat economic data, “that just as one swallow does not a summer make, one good PMI doesn’t signal a recovery”.
Rob Wood, the chief UK economist at the consultants Pantheon Macroeconomics, said the PMI data was too downbeat about the state of the economy.
“The PMI readings for first quarter appear too pessimistic,” he said. “We expect to see [economic] growth pick up in the first quarter, despite January’s small fall.”
Looking ahead to the rest of the year, growth is likely to remain modest, he added.
“Overall, growth this year looks likely to be steady rather than spectacular as the impact of past interest rate rises, tighter fiscal policy, and geopolitical uncertainty weigh on activity,” he said.
