Key facts
- UK manufacturers' business activity has grown for nine consecutive months.
- The UK manufacturing PMI for July was 51.9, indicating expansion.
- Output and new orders rose at a faster pace in July compared to June.
- Supply chain delays eased to their lowest level since the Middle East war.
- Employment growth in the manufacturing sector slowed to its weakest in four months.
UK manufacturers have navigated a challenging economic landscape, with production levels surging to a near two-year high in July, marking the ninth consecutive month of growth. The S&P Global Purchasing Managers' Index (PMI) for the sector registered 51.9, surpassing the neutral 50-point threshold and indicating a robust expansion.
Firms reported faster increases in both output and new orders compared to June. However, this positive momentum did not fully translate to the labor market, as employment growth saw its weakest rise in four months. Manufacturers are reportedly focusing on cost reduction, particularly in anticipation of potential spikes in energy costs.
On the supply and price fronts, manufacturers found encouragement as the rate of increase in input costs slowed sharply to a five-month low, with supply chain delays easing to their lowest point since the outbreak of the war in the Middle East. This easing contributed to the positive sentiment among businesses, who expect further output increases over the next 12 months despite broader economic concerns.
However, the broader UK economy faces headwinds. Consultancy EY suggests the UK could enter a recession if the conflict in the Middle East extends into the middle of next year. Matt Swannell of the Item Club noted that the breakdown of a recent ceasefire has fueled uncertainty, leading to a resurgence in oil and gas prices. He warned that higher energy costs would increase business expenses, while rising inflation and weakening wage growth would squeeze disposable incomes, potentially impacting demand.