LONDON, June 2 (Reuters) - The downturn in British manufacturing was less steep than first feared in May but output, orders and jobs continued to drop as companies cited recent tax hikes and U.S. President Donald Trump's tariffs, a survey showed on Monday.

The final reading of the S&P Global UK manufacturing Purchasing Managers' Index $(PMI.UK)$, a measure of activity among factories, was 46.4 in May compared to 45.4 in April.

It was the highest since February but remained below the 50 threshold for growth. The provisional PMI figure for May was 45.1.

While the rates of contraction across new orders, output and exports eased, survey compiler S&P Global said the environment for manufacturers was still tough.

"May PMI data indicate that UK manufacturing faces major challenges, including turbulent market conditions, trade uncertainties, low client confidence and rising tax-related wage costs," Rob Dobson, director at S&P Global Market Intelligence, said.

May's decline in output was linked to a reduced intake of new business as demand from domestic and overseas fell.

The fall in exports orders was mainly linked to weaker demand from the U.S. and Europe.

The survey showed 49% of manufacturers expected to see output increase over the coming year, slightly above 44% in April.

Manufacturing firms cut employment at the fastest pace in three months in response to uncertain economic outlook - plus a rise in employers' social security contributions and 6.7% increase in the minimum wage that came into force in April.

But there were signs that the worst of the inflation surge may have passed, S&P said, as the pace of increases in input costs and selling prices slowed.

(Reporting by Suban Abdulla; Editing by Toby Chopra)

((Suban.Abdulla@thomsonreuters.com;))