UK private sector output decreased for the second month on the trot in May, according to the latest S&P Global Flash UK Purchase Managers' Index survey.

But the rate of decline, which was seen to have slackened since April, was "only marginal", economists said – while UK private sector firms indicated that business optimism was the highest for five months in May, more than recovering any ground lost in April.

Overall, a fractional rise in service sector activity helped to offset the fastest downturn in manufacturing production since October 2023. Business activity expectations for the next 12 months, S&P said, recovered from the two-and-a-half year low seen in April, despite a faster reduction in new order intakes.

A spokesperson said: "Comments from survey respondents generally suggested that there were fewer concerns about the impact of US tariffs on longer-term domestic economic prospects, although many manufacturing firms noted that elevated global business uncertainty had still weighed on confidence."

In total, the headline seasonally adjusted S&P Global Flash UK PMI Composite Output Index registered 49.4 in May, up from 48.5 in April but still the second-lowest reading since October 2023. The way that the survey is calibrated means that an over-50 rating edges into growth and optimism, while under 50 points to downturn.

The report said: "Reduced levels of business activity were mostly attributed to subdued order books and caution among clients in response to rising business uncertainty. The downturn was driven by an accelerated reduction in manufacturing production, which contrasted with a slight rise in service sector output."

May's data also indicated how new business intakes decreased again in both the manufacturing and service sectors, with the former recording the steeper pace of contraction.

Measured overall, new work across the private sector economy fell to the greatest extent for 2.5 years.

"This was often attributed to cutbacks to non-essential spending and delayed investment decisions among clients amid rising global economic uncertainty."

Before any measure can me taken of the newly announced UK-EU trade agreement, total new orders from abroad, S&P said, decreased at a solid pace in May, led by another steep fall in the manufacturing sector. Survey respondents cited the negative impact of US tariffs on export sales, as well as a reluctance among overseas clients to place orders due to general uncertainty about global trade conditions. That said, some firms reporting an upturn in new work from abroad did cite new export opportunities in Europe, as well as Asia.

Elsewhere, subdued demand, higher payroll costs and a lack of pressure on business capacity all contributed to a further reduction in private sector employment. This was linked to a mixture of redundancies, restructuring, hiring freezes and the non-replacement of voluntary leavers. Manufacturers in particular recorded a steep decline in staffing numbers, with the pace of job shedding the fastest for five years.

UK private sector companies also indicated a sharp increase in their average cost burdens during May, although the rate of inflation eased considerably from April's 26-month high.

Similarly, output charge inflation eased to its lowest so far in 2025. Higher input prices were attributed to strong pay pressures, as well as rising utility bills, shipping costs and prices paid for technology services.

On fuel costs, a number of firms noted lower expenditure, while some cited falling imported raw material prices due to exchange rate appreciation against the US dollar.

Any rebound in confidence among UK priovate firms was driven by the service economy, with service providers commenting on more stable global financial market conditions and signs of a cautious recovery in spending plans among clients.

In contrast, manufacturers saw only a slight upturn in optimism since April and business expectations remained among the lowest recorded over the past 30 months.

"Many firms noted that elevated global business uncertainty and lingering concerns about US tariffs had weighed on confidence," S&P concluded.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "After an 'awful April', businesses reported a milder May. Business confidence has rebounded from April's recent low, which had seen confidence collapse to a degree not seen since the Truss Budget of 2022, and price pressures have moderated after spiking higher. Sunny weather also provided a welcome boost to business activity in some parts of the economy."

But he added: "Output still fell slightly when measured across all goods and services for a second successive month, hinting at the possibility of the economy contracting in the second quarter.

"Furthermore, although brighter news on tariffs and trade appears to have helped restore some confidence among businesses, sentiment about prospects in the year ahead is still subdued. Job cutting consequently remains worryingly aggressive, especially in manufacturing, as concerns about weak demand have been exacerbated by the rise in staff costs linked to the National Insurance and minimum wage changes that came into effect in April.

"More encouraging was the news on prices, with inflationary pressures moderating considerably from the spike seen in April. These reduced price pressures, coupled with signs of faltering economic growth and job losses, likely keeps the door open for further interest rate cuts in the coming months."

S&P's data also lands as new government figures issued today from the ONS suggest UK high streets have had their best month in nearly two years, with shoppers increasing their average spend on food and household goods across April despite fears about US tariffs and higher consumer price inflation.

● S&P's Global Flash UK Composite PMI is compiled from responses to questionnaires sent to survey panels of around 650 manufacturers and 650 service providers. Each panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The services sector is defined as consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.