The UK manufacturing sector continued its recovery in August, with output, new orders and employment rising significantly. Data showed positive signs of easing inflationary pressures, with inflation in input costs and selling prices slowing. The seasonally adjusted UK Final Manufacturing PMI reached a 26-month high of 52.5 in August, up from 52.1 in July, the same as the previous flash estimate. The index indicated that the sector has expanded in five of the past six months, with the exception of April. The PMI components such as output, new orders, employment and supplier delivery times continued to show positive results in August, supporting the sector’s operational performance.
However, stocks of purchases continued to contract for the 23rd consecutive month. Manufacturing output rose for the fourth consecutive month in August, as firms increased output in response to a surge in new orders and attempts to fulfil previously concluded contracts, with the rate of expansion reaching its second highest level in more than two years. August also saw new business continue to rise for the fourth month in a row, driven by improved market sentiment and a reduction in customer inventory.
The domestic market was the main driver of new contracts, while new export orders continued to fall for the 31st month in a row. Firms cited weaker demand from Europe, slower growth in China, shipping delays, competitiveness challenges from higher freight costs, and global conflicts and political uncertainty as reasons for the decline.
Recent production recoveries and a surge in new orders have helped manufacturers create new jobs. Employment increased in July and August, with the fastest rate of employment growth in more than two years recorded in August. This growth was particularly marked among larger firms.
UK manufacturing holds firm in August despite challenges
UK manufacturing held firm in August, with increased capacity to improve efforts to clear backlogs of work playing a key role in the progress. Although the volume of outstanding work continued to decline for the 28th consecutive month, the pace of decline was more moderate than in previous months. The strongest performance was in the investment goods sector, which recorded the fastest growth in output, new orders and employment, reflecting the sector’s dynamism and ability to adapt to economic challenges.
In contrast, the consumer and intermediate goods categories also saw growth, but at more moderate rates of expansion, indicating a disparity in performance between different sectors within the industry. Looking at the sector’s outlook, it remained positive in August, with 61% of firms optimistic that output will be higher a year from now, compared to just 6% who expected it to decline. This optimism is linked to a range of factors, including attracting new customers, launching innovative products, expanding into new markets, and increasing promotional activities, as well as growing hopes for a sustainable economic recovery.
However, challenges related to rising input costs continued to emerge, with firms reporting increased prices for energy, metals, plastics and wood. Several factors contributed to this increase, including supplier price increases, higher shipping costs, fluctuations in exchange rates, and material shortages. Part of this increase in purchasing costs was passed on to customers through higher selling prices.
Although production costs have increased for ten consecutive months, the rates of increase in input and production costs eased during the last month of the survey. At the same time, manufacturers maintained their focus on improving operational efficiency, protecting cash flow, and reducing costs. As a result, they reduced the volume of pre- and post-production inventories.
UK manufacturing rebound: Strong growth, rising domestic demand
In a commentary, Rob Dobson, Director at S&P Global Market Intelligence, said that the UK manufacturing sector continued to support economic growth in August. The headline PMI hit a 26-month high of 52.5, reflecting strong growth in output and new orders, as well as the highest rate of job growth in more than two years. This improvement extended across most manufacturing sectors, with the investment goods sector performing best.
The improvement was mainly driven by domestic demand, which partially offset a decline in export orders. However, the downward trend in overseas orders is concerning, with UK manufacturers seeing a sustained decline in new business from overseas since early 2022. This is due to weak demand from Europe, a slowdown in China, shipping delays and rising costs, as well as global challenges and political uncertainty. This situation has not only affected exports, but also imports, leading to production constraints due to supply chain issues, which were clearly evident in a significant increase in supplier delivery times.
Despite ongoing supply challenges and rising freight costs, input prices rose again in August by recent standards.
Data collection methodology:
The UK Manufacturing PMI is compiled by S&P Global based on responses from surveys of purchasing managers in around 650 manufacturing companies. These companies are classified by sector and size of workforce, and reflect their contribution to GDP. Data collection began in January 1992, and responses are collected during the second half of each month, reflecting changes compared to the previous month.
The indices are calculated based on the proportion of positive responses and half of unchanged responses, with a reading above 50 indicating overall growth compared to the previous month. The indices are seasonally adjusted to ensure greater accuracy.
