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
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 Clarke, 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
Full story: UK borrowing rises to £20.2bn, putting pressure on Rachel Reeves
Richard Partington
The UK government borrowed more than expected in April, underscoring the challenge for Rachel Reeves to fix public services and grow the economy while meeting her fiscal rules.
With the chancellor under pressure on Labour’s tax plans, the Office for National Statistics (ONS) said public sector net borrowing rose to £20.2bn in April, £1bn more than the same month a year earlier. City economists had forecast borrowing of £17.9bn.
Markets fall after weak US bond auction
Stock markets are falling today, as investors fret about a worryingly weak auction of US government debt last night.
In London, the FTSE 100 index fell 45 points at the open to 8741 points, away from the record high set in February.
European markets are also in the red, with Germany’s DAX falling 0.4%, and France’s CAC down 0.5%.
Stocks are weakening after investors shunned an auction of $16bn of 20-year US government bonds yesterday, forcing the Treasury Department to offer an interest rate, or yield, of over 5% to attract interest.
That’s the highest rate on this type of bond since 2020, and may be a sign that demand for US assets is waning, less than a week after Moody’s downgraded the US credit rating from Aaa to Aa1.
OUCH! US bond sell-off deepens after a 20y bond auction w/a 5% coupon—the highest since 2020—drew weak demand.
The disappointing auction pushed yields higher across the curve, w/30y yield jumping >10bps to 5.09%. pic.twitter.com/SQCAWt2ptC— Holger Zschaepitz (@Schuldensuehner) May 21, 2025
This prompted a selloff on Wall Street last night, as Jim Reid of Deutsche Bank explains:
The soft 20yr auction was also a trigger for a broader market slump, with the S&P 500 falling from -0.2% on the day to -1.61% by the close, its worst day in the past month. This was a very broad-based decline with only 18 advancers in the whole index and the equal-weighted version of the S&P down -2.15%.
Food ingredients firm Tate & Lyle has warned this morning that Donald Trump’s trade war will push up its costs and hurt sales.
Tate & Lyle told shareholders that “tariffs and the associated uncertainty” have increased costs, mainly for products supplied between the US and China.
With Washington and Beijing having agreed a 90-day truce earlier this month, Tate & Lyle are now awaiting “clarification on tariffs”.
But in the meantime, it currently expects that revenue growth will only reach the bottom of its medium-term range, or slightly below it.
Tate & Lyle also reported a 5% rise in revenues for the last financial year (to the end of March), although operating profits almost halved to £106m.
The group sources raw foodstuffs from around the world, and creates ingredients designed to offer crunch or creaminess, add fibre, or a give a sweet taste to foodstuffs without the attendant calories. They originate from the likes of corn, tapioca, seaweed, stevia leaf and citrus peel.
Chief Secretary to the Treasury, Darren Jones, has responded to April’s jump in borrowing, saying:
“After years of economic instability crippling the public purse, we have taken the decisions to stabilise our public finances, which has helped deliver four interest rate cuts since August, cutting the cost of borrowing for businesses and working people.
“We’re fixing the NHS, with three million more appointments to bring waiting lists down, rebuilding Britain with our landmark planning reforms and strengthening our borders, delivering on the priorities of the country through our Plan for Change.”
M&S website recovers from overnight outage
Kalyeena Makortoff
Any night owls trying to browse the M&S website overnight would have been sorely disappointed.
As of 6:20am this morning, visitors were still being greeted by a static landing page that simply read:
“Sorry you can’t browse the site currently. We’re making some updates and will be back soon.”
For now, the site seems up and running, though online orders are still paused.
It’s not clear how long the outage ultimately lasted. When contacted this morning, M&S’ press office refused to say whether this was part of regular maintenance or linked to ongoing disruption from last month’s devastating cyber attack.
M&S also refused to confirm whether customers should expect more website outages – cyber attack related or otherwise – in the coming weeks.
M&S has been left with some empty shelves and been forced to halt online orders on its website after the hack on Easter weekend. The attack targeted customer personal data, which could have included names, email addresses, postal addresses and dates of birth.
The company said on Wednesday that the attack had been caused by “human error”, and could end up costing the first around £300m.
CEO chief executive Stuart Machin has said general disruption could last until July.
The tax take from inheritance tax also rose last month.
Figures from HMRC show that inheritance tax receipts rose by £97m year-on-year in April to around £800m.
Shaun Moore, tax and financial planning expert at Quilter, predicts this upward trend will continue:
With property prices remaining high and nil-rate bands still frozen until 2030, more families are being caught by IHT, many without realising until it’s too late.
Upcoming changes to business and agricultural relief from 2026, and the inclusion of unused pensions in estates from 2027, mean this trend is unlikely to reverse any time soon. For those who are worried about IHT, gifting remains the best defence against it, but this should be weighed against your own needs.
It’s not all bad news for Rachel Reeves, though.
The Office for National Statistics has revised down its estimate for borrowing in the last financial year, to £148.3bn.
That’s £3.7bn less than the initial estimate, but still £11bn more than had been forecast by the Office for Budget Responsibility (OBR).
Analyst: More tax rises may be needed
Today’s borrowing figures are “disappointing”, and highlight the Chancellor’s lack of wiggle room, says Ruth Gregory, deputy chief UK economist at Capital Economics.
Gregory told clients:
April’s public finances figures showed that despite the boost from the rise in employers’ National Insurance Contributions (NICs), the fiscal year got off to a poor start. This raises the chances that if the Chancellor wishes to stick to her fiscal rules, more tax hikes in the Autumn Budget will be required.
Chart: UK public finances in April
Here’s a chart showing the details of today’s public finances:
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Introduction: UK borrowing rises to £20.2bn in April
Good morning, and welcome to our rolling coverage of business, the financial markets and the eurozone.
It’s a new financial year, but the same old story for the UK government, as borrowing rises faster than expected.
The latest public finance figures, just released, show that the UK borrowed £20.2bn in April. That’s £1bn more than in April 2024 and the fourth-highest April borrowing since monthly records began in 1993.
City economists had forecast a deficit of around £18bn, so the new financial year has not gott off to a great start for Rachel Reeves, at a time when the chancellor is under pressure to raise taxes to avoid cuts to welfare payments.
The public finances report shows that central government’s current receipts rose by £5.1bn year-on-year, due to increased tax receipts – including £1.7 billion in Income Tax, £500m in Value Added Tax (VAT), £500m in tobacco duty, £400m in stamp duty (on land and property), and £200m in Corporation Tax receipts.
However, spending rose too – central government’s current expenditure increased by £4.2bn, as pay rises and inflation pushed up the cost of goods and services, and some benefits increased in line with inflation.
ONS deputy director for public sector finances Rob Doody says:
“At £1 billion higher than the same time last year, this April’s borrowing was the fourth highest for the start of the financial year since monthly records began more than 30 years ago.
“Receipts were up on last April, thanks partly to the higher rate of National Insurance contributions. However, this was outweighed by greater spending, due to rising public services’ running costs and increases in many benefits and state pensions.”
Happily, though, the interest payable on central government debt fell by £500m to £9.0bn, due to lower payments on inflation-linked bonds.
The agenda
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7am BST: UK public finances for April
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9am BST: Eurozone ‘flash’ PMI report for May
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9am BST: IFO survey of eurozone business confidence
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9.30am BST: UK ‘flash’ PMI report for May
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11am BST: CBI industrial trends
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1.30pm BST: US weekly jobless claims 1.30pm
