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13 June, 2024

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UK manufacturing expands at fastest rate for two years

03 June, 2024

The UK manufacturing sector returned to growth in May, as output expanded at the fastest pace in more than two years, off the back of improved intakes of new work. Manufacturers’ sentiment also rose to its highest level since early 2022, with 63% of companies expecting output to expand over the coming year, according to the latest seasonally-adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI). The index rose to 51.2 in May, up from 49.1 in April – its highest since July 2022, and the second time it has been above 50, indicating expansion, in the past three months.

Manufacturing production grew at the quickest rate since April 2022, with the upturn being broadly-based by both sector and company size. The growth in output was underpinned by improved intakes of new work, stronger market conditions and efforts to complete existing contracts. The level of new business placed with UK manufacturers rose for the second time in the past three months and to the greatest extent since April 2022.

The upturn in demand was centred on the domestic market, as new export orders fell for the 28th month in a row. There were reduced inflows of new work from the US, the EU and the Middle East. But the rate of contraction was the joint-weakest in the current sequence of decline.

Business confidence improved in tandem with the recovery in market conditions. Manufacturers reported the highest degree of optimism for production volumes since February 2022.

Employment fell for the 20th successive month, while inventories of finished goods and purchases were both depleted.

May saw average input costs increase for the fifth successive month, albeit to a lesser extent than in April.

After strengthening for five months, May saw the rate of output price inflation hit its highest level in a year.

“May saw a solid revival of activity in the UK manufacturing sector, with levels of production and new business both rising at the quickest rates since early-2022,” comments S&P Global Market Intelligence director, Rob Dobson. “The breadth of the recovery was also a positive, with concurrent output and new order growth registered for all of the main sub-industries (consumer, intermediate and investment goods) and all company size categories for the first time in over two years.

The UK manufacturing PMI grew at its fastest pace for two years in May 2024.
Source: S&P Global PMI

“While the latest upturn was dependent on a strengthening domestic market, there were signs of overseas demand also moving closer to stabilisation,” he adds. “Business optimism rose in tandem with the improvement in current conditions, with 63% of manufacturers forecasting their output to be higher one year from now.

“The latest PMI survey data provided a mixed picture for price pressures at manufacturers, however,” Dobson concludes. “At the factory gate, output charge inflation strengthened for the fifth successive month and to its highest level in a year. That said, a solid easing in the rate of increase in input costs should help prevent price pressures from becoming embedded.”

Commenting on the PMI data, senior Make UK economist, Fhaheen Khan, said: “Manufacturers have responded with strength following a challenging period of slowing demand, rising cost pressures and difficulties across supply-chains. The latest data is the strongest indication yet that the most recent UK recession is already a distant memory for many businesses.

“The sector’s rise was unexpectedly influenced by a boost in domestic trade despite improving economic conditions in the EU and US which has yet to translate into stronger exports for UK manufacturers,” he added. “This is a good sign for the industry, though companies will act cautiously going forward and avoid over-analysing the situation given current political uncertainty which will certainly leave caution for investment in the coming weeks.”

♦  Although the manufacturing PMI for the Eurozone hit a 14-month high in May, most of the major manufacturing countries including France (on 46.3), Italy (on 45.6) and Germany (on 45.4), were still in contraction territory. Exceptions includes Spain (54.0) and Greece (54.9). 

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