The UK manufacturing industry displayed its hallmark resilience in February, posting its first production rise in eight months, despite continuing labour challenges and lower order intakes, according to the latest S&P Global / CIPS UK Manufacturing PMI®.
February 2023 UK Manufacturing PMI key findings:
- Manufacturing PMI at seven-month high
- New orders fall but show signs of stabilising
- Input cost and output price inflation ease
Having started the year on the back foot, the UK manufacturing sector showed its resilience by staging something of a come-back in February, posting a seasonally adjusted PMI of 49.3 last month (vs. January’s reading of 47). Despite remaining in contraction territory (below 50) for the seventh consecutive month, February’s PMI is the highest reading during that period.
Could this reality signal an imminent return to growth?
In addition to manufacturing production rising for the first time in eight months, companies were also increasingly upbeat about the future. Indeed, business sentiment rose for the third month running and reached its highest level in a year. Furthermore, 60% of companies said they believe production will increase even further over the next 12 months. Just 10% said they anticipate a downturn.
February saw reduced pressure on supply chains, the knock on effect of which was improved supplier performance for the first time in three-and-a-half years and input prices increasing at their slowest rate since July 2020.
Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “UK manufacturing showed encouraging signs of resilience in February. Output rose for the first time in eight months, boosted by weaker cost inflation and reduced supply chain disruptions. Input prices increased at the slowest pace since July 2020 and supplier performance improved for the first time in three-and-a-half years. This offset some of the ongoing negative impacts from strikes, the cost of living crisis and lower order intakes.
“Manufacturers’ confidence also strengthened, with 60% of companies forecasting production will expand during the coming year. Part of the reason for renewed optimism was a near-stabilisation of new order inflows in February, with total new orders and new export business both falling only slightly and to much lesser extents than in recent months. Manufacturers benefited from growing signs of a global economic recovery and the easing of COVID restrictions by China. This process of economic revival, alongside signs of inflation peaking and reduced recession fears, should hopefully help UK manufacturers eke out further growth in the coming months.”
Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “Driven by improvements in supply chain deliveries and more stable price rises, the manufacturing sector reported a more upbeat assessment of the state of play for makers in February and output rose for the first time in eight months. A stronger global economy reflected in less caution in the UK marketplace and though new order levels were still deteriorating, the falls were less marked.
“Optimism about business in 2023 was also the highest for 12 months. Whilst some companies were still holding on by their fingertips, managing cashflow through staff cuts and reduced costs, others were feeling confident enough to invest in operating capacity in a more stable trading environment.
“Prices for raw materials and components were still rising last month but faster deliveries and reduced scarcity improved availability. Some concerns over price gouging remained but charges to customers also eased in line with a reduced inflationary environment.”
Maddie Walker, Industry X lead for Accenture in the UK, said: “It’s reassuring to see signs of growth returning to UK manufacturing after the gloom which dominated the sector last year. News that the UK may avoid a recession has buoyed the sector and recent foreign investments are a vote of confidence in the UK’s manufacturing capabilities for the future. As economic revival continues, we will hopefully see further growth in the coming months. While the road to full recovery will be a long one, it will take continued investment in the right digital technologies, alongside ensuring new recruits have the right skills for modern manufacturing. It’s this that will help bolster the sector’s resilience and ensure this growth is sustained.”
Andy Hart, manufacturing and industrials relationship director at Lloyds Bank, said: “Manufacturers are currently facing a twin reality. With bullish order books suggesting that supply chain challenges have past their peak, business to business trade is strong. However, a persistently tight labour market and prolonged cost pressures may hold back the sector from returning to growth.
“There has been less confidence when it comes to demand for consumer goods over recent months, but a return to growth here is encouraging to see. Household budgets are impacting discretionary spending, and while inflation is easing from its peak, consumers are still feeling the pinch from prices increasing faster than wages. Consumer spending pressures will continue to curb demand for the next few months at least.”
Glynn Bellamy, UK Head of Industrial Products for KPMG, said: “Whilst still a challenging climate, an easing of supply constraints and inflationary pressures was a positive dynamic on manufacturing output and productivity. When taken alongside a tentative increase in demand for manufactured goods, it brought a boost to UK manufacturers over the last month.
“The sector will be hoping that this upturn continues – but will be acutely aware that global confidence remains low and the key focus will be on forward-looking order trends.”
Michael McGowan, Managing Director, Bibby Foreign Exchange at Bibby Financial Services: “Today’s improvement in the manufacturing PMI data, along with the news that UK manufacturing production has risen for the first time in eight months, highlights the sector’s resilience in spite of a myriad of challenges. It signals that perhaps a recession may not be as inevitable as once assumed, and the previous downturn is now stabilising.
“Yet, manufacturers continue to face an anxious few weeks – with the new Brexit deal front of mind. And although some manufacturers will be relieved that the cost of raw materials has reduced due to the strength of the Pound off the back of the Northern Ireland Brexit deal, it will be exporters who feel most vulnerable as costs increase in the immediate term.
“It’s therefore more critical than ever for manufacturing businesses to effectively navigate currency fluctuations during this uncertain time. Prioritising foreign currency requirements within financial planning processes will be fundamental if we are to see the sector’s resilience and confidence continue to improve.”
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