The UK’s manufacturing sector sustained its growth momentum at the close of the second quarter, as revealed by the seasonally-adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI).
In June, both output and new orders expanded for the second consecutive month, with growth rates remaining near May’s peak levels. However, there was a modest rise in cost inflationary pressures, with input prices increasing at their fastest rate since January 2023.
The PMI registered 50.9 in June, slightly down from May’s 22-month high of 51.2 and below the preliminary estimate of 51.4. Despite this slight dip, the PMI remained above the neutral 50.0 threshold, indicating expansion for the past two months.
Three of the five PMI components suggested improved operating conditions in June, as output and new orders increased, and suppliers’ delivery times lengthened. Conversely, stocks of purchases and employment saw declines.
Production volumes rose for the second month in a row, driven by increased new order intakes and efforts to clear work backlogs. The output growth rate was solid, just below May’s 25-month high. This growth was broad-based, covering the consumer, intermediate, and investment goods sectors.
However, the breakdown by company size painted a mixed picture. Large-scale producers experienced output growth, while small and medium-sized enterprises (SMEs) saw contractions. Demand followed a similar trend, with new orders rising at large firms and falling at SMEs.
Overall, new business intakes increased for the third time in four months, attributed to improved demand, higher market activity, product promotions, and the end of destocking by some clients. Consumer and investment goods producers registered gains, offsetting a continued decline in the intermediate goods category, though the downturn eased.
Domestic market demand drove the upturn, with new work from overseas declining for the 29th consecutive month. Lower intakes from clients in North America, China, Germany, France, Italy, Sweden, the Middle East, and Poland were reported. Part of this decline was linked to shipping delays and rising freight costs, often resulting from the Red Sea crisis.
Manufacturers maintained a positive outlook in June, expecting market recovery, growth strategies, new product launches, and promotional activities to drive future growth. Optimism was close to May’s 27-month high, with 57% of firms anticipating increased output over the coming year. Some uncertainty due to the forthcoming General Election was noted, though it was expected to diminish post-election.
Despite the positive outlook, manufacturers focused on cost control and cash flow protection, leading to job cuts, reduced non-essential purchasing, and leaner stock holdings.
June saw average purchase prices rise for the sixth consecutive month, at the fastest pace since January 2023. A wide range of inputs, including energy, food, metals, packaging, paper, plastics, and timber, saw price increases. Tight supply lines, higher import costs, and freight issues contributed to these higher costs.
In response to rising costs, selling prices also increased for the eighth consecutive month.