UK Manufacturing Downturn Shows Signs of Easing Amid Cautious Optimism

The UK manufacturing sector showed signs of stabilising at the end of the second quarter, according to the latest S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) report. While key indicators such as output, new orders, and employment remained in contraction territory, the pace of decline slowed notably. The seasonally adjusted PMI registered 47.7 in June, marking its highest reading in five months and maintaining the improvement seen since March’s near 18-month low.

Although four of the five PMI components—output, new orders, employment, and stocks of purchases—signalled continued deterioration in operating conditions, all showed weaker rates of contraction. Vendor lead times also extended for the 18th straight month but to the least degree since March.

June marked the eighth consecutive monthly drop in manufacturing output. Firms scaled back production in response to ongoing economic uncertainty, subdued demand, and inflation-related cost pressures. New orders also declined, although at the slowest rate in the current nine-month streak. Weaker demand came from both domestic and international markets, with export orders falling for the 41st month in a row, primarily due to reduced activity from the US, Europe, and China. Tariff concerns further dampened international client confidence.

Despite these challenges, business sentiment improved. Around 46% of manufacturers expect output to increase over the next 12 months, compared to just 10% predicting a decline. Optimism is driven by plans for new product launches, expansion into new markets, increased investment, and efforts to boost organic growth. Additionally, the new orders-to-finished goods ratio—a key forward-looking indicator—rose to its highest level since August 2024.

Nevertheless, employment in the sector continued to fall, marking the eighth consecutive month of job cuts. Reductions were reported across all manufacturing categories and company sizes, with the steepest declines at larger firms. Job losses were attributed to efforts to reduce excess capacity amid falling backlogs of work and streamlined stock levels.

Input costs continued to rise for the 18th straight month, influenced by inflation, higher labour costs, and supply chain disruptions. Price increases were particularly noted in chemicals, metals, packaging, and food products. However, both input cost and selling price inflation eased slightly, hitting their lowest levels in several months.

Rob Dobson, director at S&P Global Market Intelligence, cautioned that while the outlook has brightened slightly, uncertainty surrounding tariffs, government policy, and geopolitical instability could still hinder a full recovery.