UK Manufacturing PMI: industry records growth for first time since July 2022

As well an uptick in output and new orders, UK manufacturing also saw contraction in employment and purchasing activity both slow sharply, contributing to the highest business optimism we’ve seen for 11 months, with 58% of manufacturers expecting their level of production to increase over the coming year. Just 7% anticipated a contraction.

The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) was 50.3 in March, up from 47.5 in February and slightly above the earlier flash estimate of 49.9. This is the first time UK manufacturing has posted above the 50 mark — which signals growth or expansion in the sector — since July 2022.

While two out of the five PMI sub-components — employment and stocks of purchases — both signalled ongoing downturns, their level of contraction eased significantly last month. Meanwhile, the other three PMI sub-components — new orders, output and suppliers’ delivery times — all signalled growth.

Holdings of finished products also declined in March. Lower inventories reflected cost-control programmes, lower safety stock requirements and settling existing contracts  from stock. Backlogs of work subsequently fell for the 23rd month in a row.

For comparison, the Eurozone Manufacturing PMI was 46.1 in March (a three-month low), extending the current period of decline to exactly one year.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “The end of the first quarter saw UK manufacturing recover from its recent doldrums. Production and new orders returned to growth, albeit only hesitantly, following yearlong downturns, with the main thrust of the expansion coming from stronger domestic demand.

“The upturn in demand also led to improved confidence among manufacturers, with positive sentiment hitting an 11-month high. Some 58% of companies expect their output to rise over the coming year.

“We’re also seeing signs of stabilisations in employment and purchasing activity alongside a move towards lowering safety stocks, all signs that manufacturers are tentatively optimistic about the road ahead.

“Potential blockers remain such as continued weak export performance and supply chain stresses, with the neighbouring EU market the main drag on overseas demand and the Red Sea crisis still impacting supply chains. Signs from the survey that the impact of both of these factors is easing is therefore welcome news.”

Industry reactions to March Manufacturing PMI

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, said: “With another rise in March, manufacturers are navigating economic challenges and remain optimistic about future growth.

“Our latest UK Sector Tracker found that firms are running down backlogs of existing work and increasing production in hope of rising demand in the months ahead. This will help them make up for lost time when supply chain pressures caused by tensions along international shipping routes ease.”

Boudewijn Driedonks, partner at McKinsey & Company, commented: “UK manufacturing has finally crossed the line and jumped over the magic 50 mark. Customer re-stocking, output growth in consumer goods and a rebound in new order intakes has driven the PMI to a 20-month high and halted the contraction. This modest expansion is driven by domestic growth while overseas demand is falling.

“Reassuringly, services PMI, manufacturing PMI, composite PMI and the business activity index are leaping over the 50-mark boundary. This could be seen as a potential sign that the UK economy is stabilising and nearing a soft-landing.

“While the Eurozone economy as a whole has started to display signals of holding steady, underlying performance shows a mixture of good and bad. Manufacturing in Spain and Greece is growing again with activity moving into expansion territory. And a recovery in the services sector has helped nudge the composite index. However, manufacturing in Germany and France – where manufacturing represents a larger part of the economy – has taken a U-turn in recent months. In Germany, the contraction is particularly pronounced with activity spiralling to a five-month low of 41.9 and incoming orders continuing to shrink unabated. At the same time, China has reported its strongest manufacturing PMI since February 2023 with overseas demand picking up, potentially adding to the downward pressure on the Eurozone manufacturing industry.

“Many will be hopeful that today’s PMI figures point towards a more positive outlook for 2024. The contraction in services, and in some countries manufacturing, has been brought to hold. Businesses need to continue treading carefully and protecting margins while finding specific pockets of growth. As the contraction has abated, purchase price inflation is back and companies are protecting margins by raising selling prices. It is likely that those in Europe’s services sector will start Q2 more upbeat than those in manufacturing.”

Cara Haffey, Manufacturing and Automotive lead at PwC UK, said: “Positive signs for the sector were demonstrated in March, with the PMI posting 50.3 – a 20-month high and the first time the reading has posted above 50.0 (showing growth) since July 2022. It’s interesting to compare domestic growth versus exports and international markets – with the PMI noting the uptick in new business inflows was centred on domestic markets, whereas new export orders remained weak in comparison.

“With overseas demand falling for the twenty-sixth successive month, this could possibly signal the relative stability being provided to domestic markets with falling rates of inflation compared with the ongoing disruption for manufacturers with global vendors and supply chains, which continue to deal with delays to lead times and shipping routes due to continued geopolitical disruption. If domestic growth remains strong in comparison, it will be interesting to see if we observe a trend in the re-shoring of supply chains and operations as part of efforts from manufacturers to insulate themselves from logistical disruptions.

“Manufacturers may well be starting to see their optimism come to some fruition, which proved resilient once again in March. The PMI noted that sector optimism rose to its highest level since April 2023, with 58% of manufacturers expecting their level of production to increase over the coming 12 months. PwC’s executive survey carried out with Make UK earlier this year showed that a little under a third of manufacturers cited rebounds in activity if interest rates cooled as the largest opportunity for their business in 2024 – so initial signs of easing in the domestic economic landscape will be key in reassuring investment and enabling growth.”

Maddie Walker, Industry X lead for Accenture in the UK, said: “It’s been a long winter for the UK’s manufacturing industry, but the first net growth in production levels mark the end of a year-long decline. This turnaround has been attributed to the fastest rise in new orders since May 2022 and better operating conditions. While this may encourage optimism for some, manufacturers should remain cautious. Despite this tentative return to growth and an increase in sector confidence, the issue of renewed inflation in the sector looms large – with the latest increase in purchasing prices being the steepest they have been for a year.

“Efforts must be made to build on this new shoot of recovery. Business leaders can hone in on the UK’s strengths, such as expertise in the life sciences, aerospace and defence and R&D, while also capitalising on ways to boost connectivity and productivity in operations with robotics and AI, and exploring new areas of manufacturing in battery development, space and energy transition.”

Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at Brabners, said: “The UK’s manufacturing sector may well have traversed the nadir of its near two-year lull, as output and new orders returned to growth in March. Improvements were supported by growing orders in key subsectors like aerospace and automotive, which are benefiting from increased defence spending, greater confidence in long-haul travel and consumer demand for new cars.

“A high level of financial jeopardy remains across the sector though, with overall growth remaining elusive. Demand continues to be impacted by uncertainty, with the latest high-profile casualties being those who were set to build trains for the cancelled northern leg of HS2. Meanwhile, though inflation eased sharply last month, input costs remain high – including the cost of funding, shipping and reshoring as geopolitical issues continue to take their toll on production lines.”