Economy

UK Manufacturing Rebounds: Factory Output Hits Highest Growth in Nearly Two Years

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British factory output has surged at its fastest pace in nearly two years, though the rate of growth was slightly revised down from initial estimates, according to a closely monitored survey.

The final S&P Global and Chartered Institute of Procurement and Supply (CIPS) purchasing managers’ index (PMI) for the UK manufacturing sector rose to 51.2 last month, an increase from 49.1 in the previous month. Although the reading was marginally revised down from an initial estimate of 51.3, it surpasses the crucial 50-point mark that distinguishes growth from contraction and marks the highest level since July 2022.

Experts noted a widespread increase in activity, indicating rising demand for consumer goods, equipment, and investment assets as economic conditions stabilise.

Rob Dobson, director at S&P Global Market Intelligence, commented: “The breadth of the recovery is positive, with concurrent growth in output and new orders across all main sub-industries (consumer, intermediate, and investment goods) and all company size categories for the first time in over two years.”

Manufacturers have faced significant challenges due to sharp increases in interest rates in the UK and globally. Businesses often finance purchases of manufactured goods through borrowing, which has become more expensive.

“Manufacturing output has decisively exited its long recession,” said Rob Wood, chief UK economist at Pantheon Macroeconomics.

Inflationary pressures persist in the industry, with factories raising product prices at the fastest rate in a year. The PMI survey indicates that the most significant price increases were seen in the consumer and intermediate goods sectors.

Input price inflation, which measures the rate of change in business operating costs, rose for the fifth consecutive month, though at a slower pace compared to April.

Dobson added: “The latest PMI survey data presents a mixed picture for price pressures at manufacturers. At the factory gate, output charge inflation strengthened for the fifth successive month, reaching its highest level in a year. However, a solid easing in the rate of input cost increases should help prevent these price pressures from becoming entrenched.”

UK CPI inflation dropped to 2.3% in April from 3.2% in March, though services price growth remains high at 5.9%.

New orders from overseas businesses declined in May, with notably weak demand from the United States, Germany, and the Middle East.

Employment levels in manufacturing contracted for the 20th consecutive month, but optimism rose to its highest level in 27 months.

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