The UK manufacturing sector experienced a steady increase in production volumes toward the end of the third quarter, as indicated by the latest seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI).
In September, the UK manufacturing PMI registered at 51.5, a decline from August’s 26-month peak of 52.5. Despite this decrease, both output and new orders continued to rise, primarily driven by the domestic market. However, there are indications of a cautious approach to decision-making among manufacturers, particularly in light of the upcoming Autumn Statement. This uncertainty has contributed to slower growth rates in production and new business, alongside a dip in future expectations, which have hit a nine-month low.
The PMI has remained above the neutral threshold of 50.0 for five consecutive months. Notably, three out of the five PMI subcomponents—output, new orders, and suppliers’ delivery times—indicate improved manufacturing operating conditions.
Conversely, employment levels and stock purchases both declined, as manufacturers sought to mitigate rising input costs by cutting expenses in other areas. Manufacturing production increased for the fifth consecutive month in September, with a notable uptick in the consumer and intermediate goods sectors, both of which reported significant gains in output and new business.
In a shift from previous performance, the investment goods sector, which had excelled in recent months, fell back into contraction, with declines in production and new work inflows marking the first downturn in five months.
September data also revealed a continued decrease in incoming new export business, marking the 32nd consecutive month of decline. UK manufacturers attributed this trend to subdued market conditions in Europe, particularly concerning France and Germany, alongside reduced demand from US clients.
Rising uncertainty among manufacturers and their clients has affected several variables this month. Along with slower increases in new orders and output compared to August, there was a notable decline in confidence regarding future production trends. This caution has manifested in cuts to employment, purchasing activity, and inventory levels, reflecting a growing apprehension about costs.
Business optimism dropped to a nine-month low in September, with the month-on-month decline in the Future Output Index recorded at 7.5 points—the second steepest drop on record, surpassed only by the decline observed in March 2020.
The uncertainty surrounding potential changes in government policy, particularly related to the Autumn Budget in October, combined with sluggish global market conditions, has dampened the outlook for UK manufacturers over the next year. Despite this, half of those surveyed—50%, down from over 60% in August—remain hopeful for output growth, citing new projects, marketing strategies, and upcoming product launches as sources of optimism.
Manufacturing employment saw a decline in September, following two consecutive months of increases. This reduction in staffing levels reflects cost-cutting measures and a more cautious stance from companies amid growing uncertainty about future demand.
Purchasing activity also experienced a decline, with average input prices rising at their fastest rate since January 2023. Several materials saw price increases, attributed in part to higher freight costs. Additionally, the re-routing of supply chains away from the Red Sea has contributed to lengthening lead times from suppliers for the ninth consecutive month, leading to higher costs being passed on to some clients through increased selling prices.
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