The latest data from S&P Global indicates the UK Services PMI for March is 53.2, exceeding expectations of 50.9, while Manufacturing PMI is at 44.6, below the expected 46.4. The Composite PMI stands at 52.0, also surpassing the 50.3 forecast.
Key findings reveal the Composite Output Index has reached a six-month high, and the Services PMI Business Activity Index is at a seven-month high. Conversely, Manufacturing Output Index and Manufacturing PMI are at 17-month and 18-month lows, respectively.
Modest Economic Expansion
The data suggests modest expansion in March, aligning with a projected quarterly GDP growth of 0.1%. Employment continues to decline amid concerns over costs and uncertain outlooks, while confidence remains low. The growth is primarily seen in financial services, with consumer-facing businesses and manufacturers still facing challenges.
Factors impacting the economy include additional Budget costs, subdued confidence, and sluggish demand linked to geopolitical issues. These challenges may intensify with higher National Insurance contributions in April and potential changes to US tariff policies.
The latest figures show stark differences between the services and manufacturing sectors. With services growing at their quickest pace in several months and manufacturing hitting its lowest point in well over a year, the divide has only grown wider. While the overall economy is expanding slightly, the outlook remains restrained. Firms are shedding workers. Confidence is weak. Costs remain a concern. GDP growth is sluggish at best. Support comes from a few areas, but the broader situation remains difficult.
A reading above 50 suggests expansion, and with both services and the composite index exceeding forecasts, there is a sense of resilience. That said, the underperformance in manufacturing cannot be overlooked. At 44.6, the latest reading marks an extended period of weakness, falling even further below expectations. Previous months have suggested industry struggles, and this latest decline reinforces that trend. Manufacturing is far from stabilising, and with order books thinning and costs still pressuring margins, conditions are unlikely to improve in the near term.
March’s employment trends reinforce concerns about the broader economic picture. Although financial services have seen some stability, other industries continue to cut jobs. This suggests employers remain cautious, prioritising cost control over expansion. Expectations for output have not risen meaningfully, leading firms to reassess staffing needs. That decline in employment, alongside subdued sentiment, indicates businesses expect demand to remain weak.
Rising Pricing Pressures
Pricing pressures remain. Additional Budget costs are filtering through, leaving businesses to absorb or pass on rising expenses. Higher National Insurance contributions from April could further tighten conditions. While services showed increased activity, it is unclear how sustainable that momentum is given these cost pressures. Spending concerns appear persistent, and with tariff changes in the US still a possibility, companies with overseas exposure could face fresh hurdles.
Domestic demand remains mixed. Financial services have been an exception, offering some stability. However, businesses more reliant on consumer spending continue to struggle. With confidence still low, household budgets remain stretched. That does not create favourable conditions for discretionary spending. Businesses serving those sectors will continue to feel the effects of hesitant consumers.
External pressures are adding to the uncertainty. Geopolitical risks are dampening demand in certain segments, with businesses increasingly citing global developments as a factor in weaker confidence. That backdrop is unlikely to improve overnight, meaning companies must consider these risks when assessing future plans.
While March provided better-than-expected performance in some areas, overall economic conditions remain delicate. Services have been carrying the expansion, while manufacturers are stuck in a downturn. Costs are rising, demand is uneven, and confidence is not recovering in any meaningful way. Each of these will influence the next steps for those navigating short-term market movements.
