The UK manufacturing sector returned to growth in May, as output expanded at the quickest pace in over two years on the back of improved intakes of new work.
The outlook also brightened as manufacturers’ positive sentiment rose to its highest level since early-2022, with 63% of companies expecting output to expand over the coming year.
The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index™ (PMI®) rose to 51.2 in May, up from 49.1 in April, its highest reading since July 2022 but a tick below the earlier flash estimate of 51.3. The headline PMI has posted above the neutral 50.0 mark in two out of the past three months.
May saw manufacturing production expand at the quickest rate since April 2022, with the upturn broad-based by both sector and company size. All three product categories covered by the survey (consumer, intermediate and investment goods) and all three size definitions (small, medium and large) registered concurrent expansions for the first time in over two years.
Output growth 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 centered on the domestic market, as new export orders fell for the twenty-eighth month in a row. There were reduced inflows of new work from several trading partners, including the US, the EU (with specific mentions of Germany and Poland) and the Middle East. That said, the rate of contraction was the joint-weakest in the current sequence of decline (matching March 2022).
Business confidence improved in tandem with the recovery in current market conditions. Manufacturers reported the highest degree of optimism regarding the one-year ahead outlook for production volumes since February 2022. Positive sentiment was linked to hopes that continued economic recovery, promotional efforts and improved export orders would all support growth in the future. However, some firms also noted concerns about political and economic uncertainty (both at home and overseas).
Considerations relating to operating efficiency, cost management and lean production remained at the forefront of manufacturers decision making during May. Employment was reduced for the twentieth successive month, while inventories of finished goods and purchases were both depleted.
Input buying increased slightly during May, halting a 22-month sequence of reduced purchasing activity. Suppliers’ delivery times lengthened for the fifth month running, mainly due to transportation issues such as the ongoing crisis in the Red Sea.
May saw average input costs increase for the fifth successive month, albeit to a lesser extent than in April. Manufacturers reported a wide range of items as up in price, including chemicals, metals, paper, polymers, pulp products and timber.
Sector data painted a mixed picture for trends in purchasing costs. While intermediate goods producers saw input prices rise at the quickest rate in almost one-and-a-half years, cost inflation eased sharply in the consumer goods category. The investment goods sector saw purchasing costs decrease for the first time in the year so far.
After strengthening in each of the past five months, May saw the rate of output price inflation hit its highest level in a year. Rates of increase accelerated in the consumer and intermediate goods sectors, but eased at investment goods producers.
Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “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. 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.
“While the latest upturn was dependent on a strengthening domestic market, there were signs of overseas demand also moving closer to stabilisation. 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. 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.”
Industry reacts to May UK Manufacturing PMI
Maddie Walker, Industry X lead for Accenture in the UK, said: “News that the UK manufacturing industry has not just returned to growth, but also hit a 27-month high, is a massive boost to an industry that has struggled with inconsistency so far this year. Visible growth for the second time this year indicates that while we are not yet on steady ground, last year’s consistent decline now lies in the past.
“Last month, we saw a rise in domestic client demand for new orders coupled with easing inflationary pressures, which created an optimal environment for growth. Manufacturers can only hope this marks the start of a bright summer for the industry, despite the political uncertainty as we head into a General Election.
“With this in mind, it is crucial for the sector to remain agile to ensure it can deal with the fluctuations. For example, car production is continuing to fall as the transition of car factories to an all-electric future is causing some inconsistencies in supply and demand. The industry must continue making critical investments that play into the UK’s strengths and maintain the competitiveness of the sector. Investments in low-cost and zero-carbon energy to help address the high-power costs and enable manufacturers to meet their decarbonisation targets would help to maintain stability in the sector.”
“Whilst a return to such a height is rightly being celebrated – with business and customer confidence also both on the up – manufacturers must not be complacent.”
Boudewijn Driedonks, partner at McKinsey & Company, said: “UK manufacturing has moved firmly into expansion territory. This is a sigh of relief after last month’s decline, which now seems more like a blip on the broader recovery trend since last year’s record contraction in August. Growth in new business nudged PMI towards a 22-month high of 51.2. And businesses optimism is at a 27-month high with expectations of continued output growth throughout the rest of the year.
“In the Eurozone, manufacturing showed tentative signs of recovery. Although the sector remains in contraction, the rate of decline is decreasing, and the index moved in the right direction with PMI reaching a 14-month high of 47.3. Both input and output prices also showed signs of stabilising. Export orders improved in Germany, and domestic demand appears to be picking up in France. However, weaknesses remain. For example, factory job losses continued in Germany due to spare capacity and exports were reported as weak in France.
“Overall, today’s PMI figures signal that economic growth is charting in the right direction. Despite lingering fragilities, there has been a marked pick-up in activity as firms report stronger demand and prices seem to be stabilising. With conditions starting to improve, many manufacturers will likely be entering the second half of the year with cautious optimism.”
Cara Haffey, Manufacturing and Automotive Lead at PwC UK said: “Not only did May see a PMI reading of 51.2 – demonstrating sector growth twice in the last three months, but also positive performance across all product categories and all three size definitions for the first time in over two years. Stability is becoming a recurring theme in the sector, as businesses seek to capitalise on more predictable costs with inflation starting to become relatively more manageable.
“Demand was seemingly centered on domestic markets, as the level of new business placed with UK manufacturers rose for the second time in the past three months and to its strongest level since April 2022. This perhaps demonstrates the move to localise supply chains in order to navigate the ongoing disruption to key global logistics routes, with new export orders falling for the twenty-eighth month in a row.
“In parallel, the PMI noted the highest degree of sector optimism for production over the next year since February 2022. Initial, but cautious signs of economic recovery will no doubt be key signals to support future growth and investment, but for exporters, or those with global supply chains, customers or partners – concerns have not yet subsided.”
Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at independent law firm Brabners, said: “May could well prove to be a turning point for UK manufacturing after almost two years of weak output. While we are by no means out of the woods yet, manufacturers will be cautiously optimistic for the future given growth in the wider economy, inflation falling to manageable levels and the potential for interest rates to be cut in the coming weeks.
“A confirmed election date is also likely to boost business and consumer confidence, and firms will be hopeful of order books benefiting as a result. Longer-term though, UK makers will want to see any incoming government setting out how it will help address the skills gap within the industry and support a shift to the modern, sustainable methods of manufacturing which will be the pillars of future growth.”