The recovery of the UK manufacturing sector gained momentum in August, with increases in output, new orders, and employment, according to the latest seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI).
The PMI reached a 26-month high of 52.5 in August, up from 52.1 in July, maintaining its earlier flash estimate. This marks the fifth month of expansion in the past six months, with only April showing a contraction.
Key components of the PMI—output, new orders, employment, and suppliers’ delivery times—remained at levels indicating improved operational performance in August. However, the stocks of purchases component continued to contract, marking its twenty-third consecutive month of decline.
Manufacturing production saw its fourth consecutive monthly increase in August, driven by rising new order intakes and efforts to fulfill existing contracts. The expansion rate was substantial, nearly matching July’s peak, the highest in nearly two and a half years. New business volumes also increased for the fourth consecutive month, buoyed by improved market sentiment and a reduction in client destocking.
Domestic demand was the main driver of new contracts, as export orders declined for the thirty-first consecutive month. Companies cited weaker demand from Europe, a slowdown in China, freight delays, high shipping costs, global conflicts, and political uncertainty as factors affecting international business.
The rise in output and new orders led to continued job creation in the manufacturing sector, with employment growing for the second consecutive month in August. The rate of job growth was the fastest in over two years, driven primarily by large-scale producers, although small firms also saw slight increases in hiring. Increased capacity helped manufacturers make further progress in reducing work backlogs, which fell for the 28th consecutive month, albeit at a slower pace.
Sector-specific data revealed that the investment goods category led growth in output, new orders, and employment in August. While the consumer and intermediate goods sectors also saw growth, their rates of expansion were more modest.
The outlook for the UK manufacturing sector remained optimistic in August, with 61% of companies expecting higher production levels over the next year, compared to only 6% anticipating a decline. This positive sentiment was linked to new client acquisitions, product launches, market expansion efforts, promotional activities, and hopes for broader economic recovery.
Despite the positive trends, input costs continued to rise in August, driven by higher prices for energy, metals, plastics, and timber, as well as supplier price increases, higher shipping costs, currency fluctuations, and material shortages. Some of these increased costs were passed on to customers through higher selling prices, with output charges rising for the tenth consecutive month. However, the rate of increase in both input and output prices eased during the month.
Manufacturers remained focused on improving efficiency, protecting cash flow, and reducing costs, leading to leaner inventories of pre- and post-production stocks. Supplier performance continued to be affected by ongoing challenges such as the Red Sea crisis, longer shipping times from China, freight shortages, and vendor capacity issues.