British manufacturers cut staff at the fastest rate for almost five years in February, ahead of upcoming tax and minimum wage hikes.
A closely-watched survey from S&P Global found the manufacturing industry experienced the steepest reduction in employment levels since May 2020, as the ‘deepening downturn’ affecting the sector ‘filtered through to the labour market’.
Its latest monthly UK Manufacturing Index fell to a 14-month low of 46.9 in February, down from 48.3 in January, the fifth successive month of contraction.
Any number exceeding 50 indicates expansion, while all figures below denote contraction.
S&P noted manufacturers cut back production amid declining new orders, restrained client confidence, and supply chain snags, including port disruption and many cargo ships continuing to avoid travelling through the Red Sea.
On the domestic front, it blamed heightened cost pressures, a reluctance to spend among customers, and measures announced by Chancellor Rachel Reeves in the most recent Autumn Budget.
Redundancies: S&P Global said the manufacturing sector experienced the steepest reduction in employment levels since May 2020
Employers’ National Insurance contributions will go up from 13.8 per cent to 15 per cent in April, while the NI threshold will be cut from £9,100 to £5,000.
At the same time, the National Living Wage is going up by 6.7 per cent to £12.21 per hour and the hourly minimum wage for 18 to 20-year-olds is soaring from £8.60 to £10.
Reeves has said the measures were necessary to help fund public services while also delivering a pay rise for millions of low-paid workers.
However, S&P noted that many firms have responded by undertaking redundancies, not replacing departing staff or cutting some employees’ hours.
It also revealed that suppliers were front-loading anticipated increases in their own costs, contributing to accelerating purchase prices for manufacturers.
Rob Dobson, director at S&P Global Market Intelligence, said the mix of ‘absent growth and rising prices will contribute to a growing dilemma for the Bank of England over the coming months’.
Britain’s economy grew by just 0.1 per cent between October and December last year, according to the Office for National Statistics.
The Bank of England expects the country’s economy to expand by just 0.75 per cent in 2025, having previously forecast growth of 1.5 per cent.
Despite this, S&P said optimism among manufacturers reached a six-month high last month, thanks partly to investment spending, new products and projects, and hopes of improving economic conditions.
‘There is reason for the industry to be cautiously optimistic about demand with a more encouraging long-term trajectory,’ added Mike Thornton, national head of manufacturing at RSM UK.
‘However, the uncertainty means that businesses need clarity and direction from government.’
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 "UK factories cut jobs at fastest pace since 2020 Covid crisis but raise hopes rises for pick-up in economy")
