Navigating the UK’s Manufacturing Landscape: What You Need To Know. Can one economy grow while another shrinks beneath the surface? This article frames the situation as a tale of two sectors: robust services growth versus worsening manufacturing performance.
Recent data demonstrate the division. Manufacturing production fell by 0.9% in April 2025, led by a 9.5% slump in automotive output and transport equipment, still 5.5% below last year. Services powered Q1 with +0.7% but showed volatility in April, contracting 0.4% as real estate and legal activity reacted to Stamp Duty shifts. May GDP edged down by 0.1%.
The central thesis is straightforward: services benefit from inelastic demand, tech-driven productivity, and pricing power, while manufacturing is exposed to tariffs, weak exports, and delayed investment.
Key Takeaways
- Services currently underpin national growth, but April and May data show fragility.
- Manufacturing faces steep declines, notably a sharp automotive downturn.
- Near-term pressures include potential inflation near 3% and a cautious Bank of England.
- Exports remain ~15% below pre-pandemic levels, weighing on industry recovery.
- Policy shifts and targeted investment in skills and supply chains are essential.
Introduction: A Tale of Two Sectors
Data from spring 2025 point to increasingly divergent fortunes across major sectors. This article explores why services remain relatively resilient while manufacturing is under clear pressure.
Services drove Q1 growth with +0.7% but then slipped 0.4% in April as real estate and legal work reacted to Stamp Duty shifts.
Manufacturing contributed to early momentum but saw production fall 0.9% in April, led by a 9.5% collapse in automotive output.
The different paths stem from structural contrasts. Services benefit from essential demand, digital drivers and pricing power. Producers face trade frictions, higher input costs and capex hesitation.
Changes in prices — energy and inputs — transmit unevenly. Firms in services can often pass costs on; manufacturers usually absorb tighter margins.
Households are saving more, which dents consumer-facing momentum and trims demand for goods. That shift hurts production and slows recovery in many segments.
“A two-speed pattern requires different policy mixes and firm responses.”
What follows
- A data section quantifying growth, GDP and output trends.
- An analysis of services’ resilience and why it matters for income and jobs.
- A deep dive into manufacturing struggles and necessary strategy responses.
- Policy options to bridge the divide and support a more balanced recovery.
The Data: Signals from a Diverging Economy
Economic readings for Q1 and April reveal contrasting trends across core sectors. Early-year momentum in GDP masks softer monthly outcomes seen in April and May.
Growth snapshot
Q1 growth was supported by services, which rose 0.7%. Yet May GDP fell by 0.1%, signalling a loss of pace into Q2.
Manufacturing under strain
Manufacturing production dropped 0.9% in April. Automotive output plunged 9.5%, leaving transport equipment 5.5% below last year and weighing on goods exports.
Services strength and volatility
Services drove early growth, helped by tech and retail. But April saw a 0.4% fall as real estate and legal work adjusted after Stamp Duty changes.
Macro headwinds
Near-term prices may rise toward 3%, while the Bank of England is likely to keep a cautious policy stance. Exports remain about 15% under pre-pandemic levels, and higher household saving narrows the domestic range of demand.
“The sectoral mix matters as much as the headline GDP rate.”
UK Manufacturing at a Crossroads: A Tale of Two Economies
Market shifts this spring underline how household demand and regulated sectors are holding up while factory output weakens.
The services sector’s resilience
Essentials and regulated utilities show steadier cash flows. Firms like National Grid and SSE benefit from regulated pricing and inelastic demand, which helps absorb cost swings.
Consumer staples — names such as Unilever and Reckitt — keep pricing power, supporting margins even when retail competition tightens.
Manufacturing’s mounting woes
Export competitiveness has eroded after US tariffs in April 2025 hit transport equipment hard. That pressure shows in lower orders and falling goods output.
Capital expenditure plans stall when trade rules, input costs and order visibility are uncertain. Investment is delayed even where long-term productivity gains exist.
Policy sensitivity and market response
Markets have shifted into gilts and defensive stocks as May’s growth surprise weighed on risk appetite. KPMG’s outlook points to restrained central bank easing and inflation near 3% early next year.
Constrained fiscal headroom limits aggressive borrowing for broad stimulus, so targeted incentives are more realistic to crowd in private investment.
“Sectors tied to external demand and rates may lag until trade clarity and policy direction improve.”
| Driver | Services | Manufacturing |
|---|---|---|
| Demand type | Inelastic essentials, tech services | Export and goods-led, cyclical |
| Pricing power | High (regulated & staple brands) | Low (margin pressure from inputs & tariffs) |
| Investment outlook | Stable digital capex | Hesitant capex pending trade clarity |
For ongoing indicators and details on sector trends, see economic indicators.
The Path Forward: Bridging the Divide
Policymakers must act now to narrow the growing gap between services and goods producers. Clear trade signals and focused public support can restore competitiveness and lift longer-term economic growth.
Trade openness and resilience
Open links with partners should be accelerated to limit tariff shocks. Bilateral deals, CPTPP consideration and faster customs simplification can diversify markets and exploit comparative advantage. Liam Fox’s example on beer and cider trade shows how preferential access can transform exports.
Targeted investment to boost productivity
Prioritise investment in automation, energy efficiency and digital twins. Pair capex incentives with reskilling for data, engineering and AI to improve output and raise income across supply chains.
“Predictable policy signals lower the cost of capital and unlock private finance.”
| Measure | Focus | Expected effect |
|---|---|---|
| Trade deals & standards | Market access | Higher exports, fewer non-tariff barriers |
| Capex allowances | Green & digital | Crowds in private investment |
| Skills programmes | Reskilling | Productivity gains, sustained economic growth |
- Target support where borrowing limits demand prioritisation: tradable sectors with strong multipliers.
- Use time-limited demand incentives that respect higher household saving, and revive orders for domestic suppliers.
Conclusion
Headline GDP masks a widening performance gap: services are holding ground while production is weakening, creating a clear range in sector results.
May data (-0.1% GDP) and April production (-0.9%, with automotive -9.5%) show near-term fragility. Modest growth is possible under KPMG’s outlook, but risks remain from weak exports and higher household saving.
Restoring momentum in manufacturing will need market access, predictable input costs and faster modernisation, while preserving services’ innovation and exportable strengths.
Clear, coordinated signals on trade, skills, energy and finance can narrow the gap and lift aggregate resilience.
