UK private sector shrinking in May as firms cut jobs
Britain’s private sector is shrinking for the second month running as factory output falls at the fastest rate in a year and a half, a new survey shows.
The latest poll of purchasing managers at UK companies found that private sector output is decreasing in May, although at a slower rate than in April.
Manufacturing production fell at the fastest rate since October 2023, although this was moderated by a “fractional rise” in service sector output.
UK firms reported that clients were cautious this month, due to business uncertainty, leading to a drop in new orders. However, worries about US tariffs have dropped this month, after Donald Trump delayed tariffs on America’s trading partners and agreed a trade deal with the UK.
Export orders fell this month, which manufacturers blamed on the new US 10% tariff on UK imports, and on wider uncertainty about global trade condititions.
Worryingly, manufacturers reported that they cut jobs at the fastest pace in five years, through redundancies, restructurings, hiring freezes, and the non-replacement of departing staff. This was blamed on subdued demand, and higher payroll costs – following the increase in national insurance contributions at the start of April.
Overall, the UK PMI composite index rose to 49.4, up from April’s 48.5, but still below the 50-point mark that separates expansion from contraction.
More evidence that the strong GDP growth reported in Q1 was a flash in the pan…
UK PMI Composite Output Index recovered a bit in May, to 49.4, but still consistent with falling activity in the private sector.
source: https://t.co/7ZOmOLtxrL pic.twitter.com/Bjkrc2tBxv
— Julian Jessop (@julianHjessop) May 22, 2025
Key events
UK 30-year bond yield highest since 10 April
Back in the bond markets, Britain’s long-term borrowing costs have hit their highest level in six weeks.
The yield, or interest rate, on 30-year UK gilts has risen by 6 basis points to 5.56%, its highest level since 10 April.
Neil Wilson, UK Investor Strategist at Saxo Markets, reports:
Investors are pushing back against the tax and spending plans by the US administration – the bond vigilantes are only ever sleeping lightly. This is not just a US problem – we have seen incredibly weak bond auctions in Japan this week too.
And in the UK we have the same problem – figures today show borrowing was £20.2bn, up £1bn from April last year and the fourth-highest April borrowing figure since monthly records began in 1993. Gilt yields ticked up. Financing domestic bliss and neverending entitlements cannot be sustained forever…
Manchester United shares fall 5% in pre-market trading after defeat to Spurs
Shares in Manchester United have fallen in pre-market trading, after the club were defeated by Tottenham Hotspur last night in the Europa League final in Bilbao.
Manchester United’s stock is on track to fall around 5.5% when trading begins, having yesterday (before the game) hit its highest level in eleven weeks.
🚨Manchester United shares dropped by 7% in pre-market trading on the New York Stock Exchange following the club’s loss in the final of Europe’s second-tier tournament — a fresh setback for owners the Glazers and Sir Jim Ratcliffe (@FT)
— The Stretford Source (@StretfordSource) May 22, 2025
Last night’s game (high on tension, but not a classic) has been dubbed the £100m showdown, and shareholders will be disappointed that Manchester United have missed out on the lucrative place in next seaason’s Champions League.
Participation in the Champions League leads to earnings from tickets, broadcast money, and sponsor bonuses.
Instead, Manchester United won’t play in European competition at all next season, which will damage the club’s revenues and profits for 2025-2026 as a rebuild gets underway….
UK factory downturn continues
Ooof. British factories have reported a sharp fall in orders and output this month, underlining how the economy appears to be stumbling.
The CBI’s latest Industrial Trends report, just released, shows that manufacturing output volumes fell in the three months to May, at the joint-steepest pace since August 2020.
Factory bosses are pessimistic about the short-term outlook too, with output expected to fall further over the three months to August.
The CBI explains:
Total order books weakened marginally in May, relative to April, while export order books improved from a sharply negative reading last month. But both total and export order books remain well below their long-run averages.
Manufacturing firms reported that stock adequacy for finished goods was largely unchanged from last month, with the balance standing close to the long-run average.
The latest CBI Industrial Trends Survey found that manufacturing output volumes fell in the three months to May, at the joint-steepest pace since August 2020. Looking ahead, manufacturers expect output to decline over the next three months pic.twitter.com/57hOix1E7z
— CBI Economics (@CBI_Economics) May 22, 2025
The CBI suggests that rising domestic business costs and US tariff uncertainty are hitting confidence.
Total order books were reported as below “normal” in May, with the balance weakening marginally relative to last month. Export order books were also below “normal” but improved relative to April. Both total and export order books remain below their long-run averages pic.twitter.com/BiK74pDddr
— CBI Economics (@CBI_Economics) May 22, 2025
Expectations for selling price inflation in May were broadly similar to last month. Selling price growth expectations remain above the long-run average pic.twitter.com/SpT2R3Ipqh
— CBI Economics (@CBI_Economics) May 22, 2025
Stocks of finished goods were reported as more than “adequate” in May, with the balance standing close to the long-run average pic.twitter.com/DABGrJRKi1
— CBI Economics (@CBI_Economics) May 22, 2025
British Land: Return to the office is in full swing
UK property firm British Land has declared that the “return to the office is in full swing”.
In its latest financial results, British Land reports that mid-week occupancy at its offices is back to pre-pandemic levels, and that “value and multi-channel retailers are competing aggressively for space on our retail parks”.
British Land’s CEO, Simon Carter, has told the FT that demand for high-end London offices is starting to “trickle down” to older buildings because of sky-high rents, fewer people working from home and a shortage of new properties.
Higher taxes ‘likely’ after rise in borrowing
The jump in UK government borrowing last month (see opening post) is prompting predictions that the government will increase taxes in the autumn budget.
Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK, explains:
Public sector net borrowing excluding Banks was £20.2bn in April, £1bn higher than in April last year. The good news was that borrowing in the 24/25 fiscal year was revised down to £148.3bn, meaning the overshoot compared to the OBR forecast was £11bn. With the public finances in a pretty dire state going into what is likely to be a much tougher Q2 and second half of the year for the economy, some fiscal consolidation in October, probably in the form of higher taxes, looks likely.
“On the details, total government receipts rose by £5.1bn compared to April 2024 with the increase in NICs meant that compulsory social payments rose by £1.7bn. At the same time, expenditure rose by £4.2bn as inflation and pay rises raised pressure on government spending.
“Looking ahead to the budget in October, the persistent over borrowing and under performance of the economy means some sort of fiscal consolidation is starting to look inevitable. Given the recent indications that there will be some sort of a U-turn on the cuts to winter fuel payments and the difficulty the government has had in getting even tiny reductions in welfare spending through parliament, it feels like any fiscal consolidation will come from higher taxes rather lower spending. Indeed, we expect a combination of higher taxes and slightly higher borrowing at the next budget.
“The good news is that with interest rates likely to be around 4% at the time of the budget there is plenty of scope for the Bank of England to cut rates to offset the impact of any fiscal consolidation on the economy.”
UK private sector shrinking in May as firms cut jobs
Britain’s private sector is shrinking for the second month running as factory output falls at the fastest rate in a year and a half, a new survey shows.
The latest poll of purchasing managers at UK companies found that private sector output is decreasing in May, although at a slower rate than in April.
Manufacturing production fell at the fastest rate since October 2023, although this was moderated by a “fractional rise” in service sector output.
UK firms reported that clients were cautious this month, due to business uncertainty, leading to a drop in new orders. However, worries about US tariffs have dropped this month, after Donald Trump delayed tariffs on America’s trading partners and agreed a trade deal with the UK.
Export orders fell this month, which manufacturers blamed on the new US 10% tariff on UK imports, and on wider uncertainty about global trade condititions.
Worryingly, manufacturers reported that they cut jobs at the fastest pace in five years, through redundancies, restructurings, hiring freezes, and the non-replacement of departing staff. This was blamed on subdued demand, and higher payroll costs – following the increase in national insurance contributions at the start of April.
Overall, the UK PMI composite index rose to 49.4, up from April’s 48.5, but still below the 50-point mark that separates expansion from contraction.
More evidence that the strong GDP growth reported in Q1 was a flash in the pan…
UK PMI Composite Output Index recovered a bit in May, to 49.4, but still consistent with falling activity in the private sector.
source: https://t.co/7ZOmOLtxrL pic.twitter.com/Bjkrc2tBxv
— Julian Jessop (@julianHjessop) May 22, 2025
Eurozone business activity falls into contraction
Ouch. Private sector output across the eurozone has fallen for the first time in five months, as the sector slides into contraction.
The latest poll of purchasing managers across the euro area shows that new orders continued to decrease, led by a slump in output in the services sector.
Output in Germany, meaning Europe’s largest economy joined France in contraction territory. The rest of the euro area continued to outperform the largest two economies, although there was a slowdown here.
Data firm S&P Global also reports that business confidence in the eurozone fell to a 19-month low.
Its HCOB Flash Eurozone Composite PMI output index, which tracks activity, has fallen to a six-month low of 49.5 this month, down from 50.4 in April.
🚨 NEW MACRO DATA:
🇪🇺 May 22 04:00
• HCOB Eurozone Manufacturing PMI (May): 48.4 (vs 49.2; prev: 49.0)
• HCOB Eurozone Composite PMI (May): 49.5 (vs 50.7; prev: 50.4)
• HCOB Eurozone Services PMI (May): 48.9 (vs 50.4; prev: 50.1)— MTS Insights (@MTSInsights) May 22, 2025
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
“The eurozone economy just cannot seem to find its footing. Since January, the overall PMI has shown only the slightest hint of growth and in May, the private sector actually slipped into contraction.
Do not blame US tariffs for this one. In fact, efforts to get ahead of those tariffs might partly explain why manufacturing has held up a bit better lately. Manufacturers have now increased production for the third straight month, and for the first time since April 2022, new orders did not decline. On the flip side, service providers, who are generally less exposed to US trade policy, except in areas like international logistics, are seeing business activity shrink for the first time since November 2024.
While foreign demand for services is softening, it is the sluggish domestic demand that seems to be dragging the sector down.
Johnson Matthey shares surge after catalyst division sale
Jasper Jolly
The share price of the FTSE 250’s Johnson Matthey has soared by 30% after it announced the £1.8bn sale of part of its business making catalysts for the chemical industry.
Johnson Matthey announced the all-cash deal with US conglomerate Honeywell this morning. The UK company, which has been under pressure to increase cash generation from American activist investor Standard Investments, said it will return most of the money to shareholders, after costs of £200m for the transaction.
The share price rose as high as £18.66 on Thursday morning, its highest in more than a year and well above the £13.89 closing price on Wednesday. However, it remains far short of the price above £32 in 2021 before it abandoned an effort to make electric car batteries.
The British manufacturer has one of the most venerable histories on the London Stock Exchange, stretching back to a business testing precious metals in 1817, and spending years as a member of the FTSE 100 index of blue-chip companies. However, it has struggled in recent years as investors questioned what would replace its reliable earnings from catalytic converters on petrol and diesel cars after the electric vehicle transition.
Liam Condon, Johnson Matthey’s chief executive, said that the Honeywell deal would realise 80% of the British company’s market value in return for only 20% of the company.
“It’s quite an exceptional valuation.”
Johnson Matthey will be left as a company selling catalytic converters to the car industry, and refining and recovering platinum group metals, plus a longer-term bet – yet to reach profitability – on growth in demand for green hydrogen made with renewable electricity.
Condon insisted that the company was not abandoning its history of chemicals innovation, and said it would benefit from the transition away from fossil fuels because of demand for platinum group metals in hydrogen fuel cells, plus industries such as defence and pharmaceuticals.
Condon also argued that investors had overestimated the pace of the transition away from petrol and diesel cars. Catalytic converters, which cause reactions that prevent harmful pollutants from being emitted into the air, will be “around for a long, long time”, Condon said.
“The long-term outlook has improved versus three years ago because the electrification outlook has changed dramatically.”
On hydrogen, Condon said that the technology was “taking longer than anybody thought” to become mainstream, and that there was “definitely an overhype” on its introduction. However, said that he expected the hydrogen bet to take off after five to 10 years. In the meantime, catalytic converter sales would continue to generate cash.
“We can afford to wait now for the market to grow. We have a very big cash machine, with a free growth optionality on top.”
The oil price has fallen by 1% this morning, on reports that the Opec+ group could lift crude output sharply again this summer.
According to Bloomberg, Opec+ are considing increasing output by 411,000 barrels per day in July. That’s triple the amount initially planned, and would match previous increases agreed for in May and June.
This has knocked Brent crude down to $64.25 per barrel, its lowest level in nearly a week.
OPEC+ members are discussing whether to agree on another large production increase at their meeting on June 1, Bloomberg News
An output hike of 411,000 barrels a day for July is among the options under discussion, although no final agreement has yet been reached
BRENT: -1,6% pic.twitter.com/PxHyvUCKzn— Evgen Istrebin 🇺🇦 (@evgen1232007) May 22, 2025
Lauren Almeida
Shares in Bloomsbury, the book publisher behind the Harry Potter series, have dropped by about 15% this morning after a sharp fall in its pre-tax profit.
The publisher’s pre-tax profit fell 22%, from £41.5m to £32.5m, in its latest financial year, which ended in February. Organic revenue, which strips out the contribution from its recent acquisition of academic publisher Rowman & Littlefield, was broadly flat at £341.2m.
The company, which also publishes the fantasy A Court of Thorn and Roses series by Sarah J. Maas, said it remained “cognisant of the uncertain macroeconomic backdrop”, although noted that books remain exempt from US trade tariffs.
The drop in Bloomsbury’s share price has put it at the bottom of the FTSE 250 today. However, it follows a strong few weeks for the stock, which had risen by about a tenth from the start of April up until yesterday.
Market strategist Bill Blain of Wind Shift Capital is “increasingly convinced” a debt crisis is approaching.
Writing after last night’s weak auction of US debt, Blain says:
Global markets are increasingly nervous on the US debt-quantum – while it seeks to increase the fiscal deficit as rates rise, the dollar is no longer directing the proceeds of global trade into Treasuries, and confidence in American politics declines. Doh!
It feels like we’re approaching the end game of this cycle – decades of financialisation, rising inequality (its apparently fine the bottom 10% of Americans will lose out to give the top 10% of Americans bigger tax breaks – and no one blinks), and the debilitating cold treacle of political meh.
As that happens, markets are become less global and more insular – it will be Japanese investors that fund Japanese debt, meaning they aren’t going to fund the US. All of which spells crisis as the USA will be looking for investors to fund the deficit as a time when Trump has managed to offend about everyone. It means higher and higher US yields – precipitating the debt crisis.
More here:
“There are gale warnings in Dover, Wight, Portland, Plymouth. Westerly 8-10. Very Rough. Rain. Poor.”
When the rest of the world is increasingly concerned about the sustainability of US debt – of course it makes sense to increase the deficit through a…
— Bill Blain (@Bill_Blain) May 22, 2025
