The UK manufacturing sector has begun 2026 on firmer footing, with activity expanding at its fastest rate for 17 months as new orders and output gathered momentum.
The latest S&P Global UK Manufacturing Purchasing Managers’ Index rose to 51.8 in January, up from 50.6 in December and above the earlier flash estimate, marking the third consecutive month in positive territory.
A reading above 50 signals growth, and the January figure suggests the sector is edging further away from the stagnation that characterised much of last year. Output increased for a fourth month in a row, while incoming new business expanded at the quickest pace in almost four years. Particularly significant was the return of export demand, which rose for the first time since 2022, with manufacturers reporting stronger sales to Europe, the United States and China.
Rob Dobson, Director at S&P Global Market Intelligence, said the figures pointed to “encouraging resilience in the face of rising geopolitical tensions”. He added: “Rates of output and order book growth accelerated, while new export business rose for the first time in four years, with Europe, China and the US the main recipients.”
Confidence rebounds after Budget uncertainty
The improving order book has also lifted sentiment across the sector. Business optimism about the year ahead reached its highest level since before the 2024 Autumn Budget, with 58% of firms expecting to raise output over the next 12 months. Companies cited hopes of recovering global demand, planned investment and new product launches as reasons for their brighter outlook.
Dobson noted a “positive bounceback in business confidence”, although he cautioned that concerns remained around government policy and the international trade environment. Manufacturers continue to watch tariff developments closely, while domestic cost pressures are building.
Jobs picture stabilises but pressures persist
Despite the stronger demand backdrop, employment continued to fall in January, extending a 15-month run of job losses. The pace of cuts, however, was the slowest in that sequence, suggesting the labour market may be nearing stabilisation. Large manufacturers reported modest hiring, but small and medium-sized firms continued to shed staff.
Cost inflation also edged higher, driven by rising commodity prices and the pass-through of increased minimum wage and employer national insurance contributions. Energy, metals and freight were among the inputs most frequently cited as becoming more expensive, prompting manufacturers to lift their own selling prices for a second month.
Uneven recovery across sectors
The upturn was not uniform. Growth was concentrated among large businesses and in the consumer and investment goods segments, while intermediate goods producers saw output decline. Supply chains remained stretched, with delivery times lengthening as purchasing activity increased at its fastest rate in more than three and a half years.
Even so, economists view the start to 2026 as a tentative turning point after a difficult period for industry. With exports improving and domestic demand steady, manufacturers appear cautiously optimistic that the year ahead will bring more consistent growth – provided geopolitical and policy risks do not intensify.
Eurozone contrast highlights UK outperformance
The UK’s brighter start to the year stands in contrast to conditions across the eurozone, where manufacturing remained in contraction territory despite tentative signs of stabilisation.
The HCOB Eurozone Manufacturing PMI edged up to 49.5 in January from 48.8 in December, a two-month high but still below the 50 no-change threshold. Output returned to marginal growth, yet new orders continued to fall for a third successive month and export demand weakened further. Business confidence across the single currency bloc improved to its strongest level since February 2022, but firms kept cutting jobs and inventories as cost pressures intensified to a three-year high.
The uneven picture was underlined by national divergences: Greece, France and the Netherlands recorded expansion, while Germany, Italy, Spain and Austria all remained in decline. Compared with the euro area’s fragile recovery, the UK’s acceleration in both domestic and export orders suggests British manufacturers are currently benefiting from relatively stronger momentum, even as they face similar headwinds from energy prices and geopolitical uncertainty.
Industry reactions
Dave Atkinson, Regional Director & UK Head of Manufacturing SME & Mid Corporates, for Lloyds Bank, said: “This third consecutive rise demonstrates continued growth for UK manufacturing and lays the foundation for a positive start to 2026. It also indicates there is momentum in supply chains as the sector benefits from more stable operating conditions.
“Manufacturers are looking to build on this with further investment in technology and upskilling their workforce. As well as boosting efficiency, firms are positioning for emerging opportunities in digital and data-driven areas of advanced manufacturing.”
Richard Powell, partner at MHA, said: “January’s PMI figures reflect a sector that is seeing light at the end of the tunnel. The PMI has risen for the fourth consecutive month, suggesting that it is turning a corner. However, there are still signs that it is weighed down by uncertainty, particularly around the geopolitical arena, which continues to play on manufacturers’ minds. That uncertainty may already be denting sales, though if the index holds in the low 50s it remains a broadly positive signal for the start of the year.
“We saw momentum building towards the end of last year, and there is underlying optimism across the sector. But manufacturers are clear: they need stability and confidence to invest. Rising energy costs and upward pressure on employment bills show no sign of easing, and the incoming Employment Rights Bill risks adding further regulation and red tape at a time when businesses are asking for support, not additional burden.
“The labour market has begun to even out, but businesses are not replacing roles that have been cut which could accelerate a longer-term shift toward automation. But automation requires significant investment; you can’t just rip up the factory floor overnight. It’s still a challenging environment for UK manufacturing, and ensuring policy decisions enable growth rather than constrain it will be critical in the months ahead.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK, said: “The UK manufacturing sector has entered 2026 on a high, with the UK Manufacturing PMI reaching a 17-month high of 51.8 in January. Following three consecutive months of growth, the sector is building on its energy, optimism and confidence.
“Positively, new export orders have increased for the first time in four years, with heightened activity from Europe, the US, and China and other emerging markets. It’s reassuring to see business optimism starting to recover, reflecting a hopeful outlook despite ongoing geopolitical tensions and economic uncertainties.
“The manufacturing sector appears resilient, facing headwinds with renewed confidence and a focus on future growth opportunities. A key finding from PwC’s Executive Survey with Make UK showed 65% of manufacturers believe the opportunities will outweigh the risks in 2026. The sector has started the year off strong, pressures such as employment levels, supply chain resilience and costs, will require business leaders to remain agile, innovative and focus on growth plans.”
Mike Thornton, Head of Industrials at RSM UK, said: “This is a strong start to 2026 for the UK manufacturing sector. With the Autumn budget behind us, and JLR turbulence in the rear view mirror, resilient UK manufacturers are increasing production. Order books are filling up as the backlog of work improved, new orders increased to 53.2 and new export orders jumped to a four-year high at 51.9 demonstrating a strengthening pipeline at the start of 2026.
“2025 saw trade uncertainty, but despite tariff and geopolitical risks, UK manufacturers are maximising new trade opportunities. If export demand continues, if we see no more tariff changes and if Industrial Strategy clarity boosts investment, then 2026 could unlock real growth for UK manufacturing.
“Leveraging the production strength we hold in the UK to maximise commercial opportunities will be key. The potential deal between JLR and Chery to produce Jaecoo vehicles in existing UK facilities– would not only deliver for JLR, but bring skilled jobs and a wider economic boost.
He added: “Despite a positive start, crippling energy cost will persist in 2026, and UK manufacturers are bracing for the introduction of a new carbon border tax in 2027. In addition, any retaliatory tariff action from the EU could present a real risk to UK manufacturing and derail future growth.”
Thomas Pugh, chief economist at RSM UK, said: “The fourth consecutive rise in the manufacturing PMI is a good sign that business confidence is rising again as the uncertainty around the budget recedes. What’s more, the increase in the new orders index suggests that, despite all the geopolitical risks, underlying global demand is returning.
“However, despite the recovery in output, employment prospects remain depressed with the employment balance only ticking up to 48.5. Anecdotally, the high cost of labour is holding back employment. That is probably one reason why the input prices index rose a little. One other aspect supporting input prices inflation will be soaring commodity prices, although some of that has unwound in the last few days, particularly as metal prices remain elevated.”
“Signs of a recovery in demand and continuing cost pressures is another reason for the MPC to proceed cautiously with interest rate cuts this year, despite the weak employment outlook.”
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