UK Firms Struggle as Downturn Continues Despite Tariff Relief

Despite a temporary relief from U.S. tariffs, UK businesses continue to experience a downturn well into May 2025. The latest data shows a contraction in the private sector for the second consecutive month, with manufacturing output shrinking at its fastest rate in 18 months. The Purchasing Managers’ Index (PMI) composite index slightly improved to 49.4 but remains below the critical 50 mark, signaling ongoing economic decline. Companies have been reducing headcounts due to soft demand and rising payroll costs, exacerbating the downturn.

Business confidence has also taken a hit, falling into negative territory for the first time in over two years. A survey from the Institute of Chartered Accountants in England and Wales (ICAEW) found that concerns over rising taxes, higher National Insurance contributions, and global trade uncertainties have further dampened sentiment. The manufacturing and engineering sectors have been particularly hard hit, with sentiment dropping significantly, further underlining the tough economic climate facing UK firms.

The economic outlook remains subdued, with the British Chambers of Commerce revising its growth forecast for 2025 down to 0.9%, from the previously expected 1.3%. Factors like rising business costs, inflation, and global trade uncertainties have contributed to this downward revision. As UK firms continue to navigate these challenges, the government’s fiscal policies and global trade dynamics will be crucial in determining the direction of the economy in the coming months.