U.S. Trade War Takes a Toll on UK's Manufacturing Sector
Steep Decline in UK Exports Likely Triggers Bank of England Rate Cut to 3.25% This Year
The manufacturing sector in the UK has witnessed its largest downturn since the peak of the pandemic, as Donald Trump's trade war causes trouble.
For seven consecutive months, the industry has been on the decline, according to data from a closely-watched business survey. This situation comes as rumors swirl about the Bank of England stepping up its pace of interest rate cuts, serving as "insurance against Donald Trump's erratic behavior."
US investment bank Morgan Stanley is predicting five more cuts this year,lowering Bank rate to 3.25% by the end of 2025 from the current 4.5%. On April 30, the purchasing managers' index (PMI) for manufacturing gave a reading of 45.4, making it the seventh month in a row that it has been below the 50-mark that separates growth from contraction—essentially indicating a recession for the UK's factories.
New export business fell at the fastest pace since May 2020, when the global economy was grappling with the Covid pandemic, as per the survey by financial data firm S&P Global. Orders from the United States, Europe, and China were all down, the data showed.
"Overseas demand is especially weak," said Rob Dobson, the director at S&P Global Market Intelligence. He added that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility.
Alongside this, firms are grappling with increased costs due to Labour's decisions to hike employer national insurance and sharply raise the minimum wage. These increased expenses lead to higher selling prices and job cuts, with employment declining for the sixth month in a row.
Business confidence among manufacturers was at the lowest since November 2022, following the disastrous mini-Budget of former Chancellor Liz Truss. It seems that the UK economy, already struggling under Labour's tax hikes, faces even tougher times due to US President Trump's tariffs.
Before the Bank of England's interest rate decision next Thursday, which will be accompanied by a quarterly assessment of the economy, the coming report seems likely to offer a grim reassessment as officials tally the costs of the trade wars.
Markets are betting on two interest rate cuts in a row in May and June, and another two by the end of the year, taking the base rate down to 3.5%. "That's insurance against Donald Trump's erratic behavior," said Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics.
Clarkson's Shares Slide
Following the impact of the trade war, shares in shipping broker Clarkson plummeted 8.8% after it announced that profits would be negatively affected.
The London-listed firm stated that uncertainty over "the potential of a global trade war has escalated." Shipping rates in dollar terms were 7% lower than anticipated in March, and a fall in the value of the US dollar could knock £9.5 million off earnings when its income is translated into pounds.
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[1] “Trump's trade war with China: A win for Britain?,” BBC News, Aug 23, 2018. [2] “Trump's Trade War: How It's Affecting Global Economies,” Fortune, July 17, 2019. [3] “UK manufacturing PMI: Output plunges as trade war bites,” Sky News, May 1, 2025. [4] “UK manufacturing hit by broader global slowdown as trade tensions take toll,” Reuters, Aug 13, 2019.
- Investing in stocks like Clarkson, a London-listed shipping broker, has become riskier due to the escalating uncertainty of global trade wars.
- The trade war's impact is not just limited to the UK's manufacturing sector; it also affects the profitability of businesses in other sectors, as seen in the case of Clarkson.
- While some argue that Trump's trade wars might benefit certain countries like England, the overall impact on the global economy and markets, such as stocks and exports, can be detrimental.
- In response to the looming threat of a trade war, finance experts recommend "insurance" in the form of diversified investments and emergency funds to cushion against unpredictable financial changes.
- The ongoing trade war and its associated volatility in the financial markets has made it especially important for UK businesses to closely monitor and adapt their strategies for export, finance, and business decision-making.
