UK manufacturing continued to expand in August, but the pace of growth eased as output and new order growth lost momentum, according to the latest S&P Global UK Manufacturing PMI.
The seasonally adjusted PMI fell to 51.7 in August, down from 51.9 in July and marking a five-month low. However, the reading remained above the 50.0 threshold separating expansion from contraction for the tenth consecutive month.
The slowdown was reflected in factory output, which increased for a fifth successive month but at its weakest rate since April. New orders also continued to rise, with manufacturers reporting improving demand from both domestic and overseas customers.
Export demand provided particular encouragement. New export business increased for an eighth consecutive month, with manufacturers reporting stronger orders for UK-made consumer and investment goods from markets including mainland China, the US, the Middle East and western Europe.
However, the performance remained uneven across the sector. Small manufacturers recorded declines in both output and new orders, while medium-sized and large manufacturers continued to expand.
The investment goods sector was the strongest performer, recording its fastest output growth in 24 months and its strongest increase in new orders for 51 months. By contrast, output growth in intermediate goods slowed to a four-month low, while consumer goods production fell for the first time in three months.
Hiring and confidence improve
One of the more positive features of the August survey was the labour market. Manufacturing employment increased for a fifth consecutive month, with the rate of job creation reaching its fastest level for two years.
S&P Global said the increase in hiring was linked to rising production requirements, stronger new order intakes and efforts to clear backlogs, with manufacturers reporting recruitment of both full- and part-time workers.
Manufacturers also became more optimistic about the year ahead. Business confidence reached a six-month high, with almost half of companies surveyed expecting their production levels to be higher in 12 months. The improved outlook reflected expectations of sales growth, better market conditions, reduced geopolitical uncertainty, lower trade tensions and planned investment in capital equipment, technology, new products and marketing.
Rob Dobson, Economics Director at S&P Global Market Intelligence, said the August slowdown appeared to be driven partly by manufacturers reducing their focus on maintaining precautionary stocks as economic uncertainty eased.
“Business confidence rose to a six-month high and job creation was the strongest for two years,” Dobson said, adding that domestic and overseas customers continued to show a willingness to spend, albeit cautiously.
There was also some relief on the cost and supply-chain front. Although input costs continued to rise, the rate of purchase price inflation eased to its lowest level since February, while supplier lead-time extensions were the least marked for six months.
UK lags eurozone manufacturing recovery
The UK figures compare with a stronger performance across the eurozone, where the manufacturing PMI climbed from 51.9 in July to 52.7 in August – its highest level since May 2022.
Eurozone factory output growth also accelerated to its strongest rate in four-and-a-half years, while new orders increased at their fastest pace since early 2022. Germany recorded its strongest manufacturing-sector growth in more than four years, while France also contributed to the overall improvement.
The eurozone’s improvement was broad-based, although Italy returned to contraction and Spain was also in contraction territory. Austria, Germany and the Netherlands recorded particularly strong growth.
Joe Hayes, Senior Principal Economist at S&P Global Market Intelligence, said the August data provided the clearest signs yet that the eurozone’s industrial economy had “shaken off” the oil price shock and supply disruptions associated with the Middle East war.
The eurozone data also showed improving business confidence, with manufacturers’ expectations for the next 12 months rising for a fourth successive month.
For UK manufacturers, therefore, August offered a mixed picture: growth remains firmly in positive territory, hiring and confidence are strengthening, and cost pressures are beginning to ease, but the pace of production and order growth remains below that seen in the eurozone.
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