UK manufacturing activity hit a near-two-year high in July, according to the latest S&P Global report. For nine months in a row, businesses have seen steady production growth, bucking the overall economic gloom. This shows a surprising resilience within the sector, even as the wider economy struggles.
PMI highlights growing confidence
The Purchasing Managers’ Index for the manufacturing industry stood at 51.9, clearly above the 50 line that marks the shift from growth to decline. Companies reported a faster increase in output and new orders compared to the previous month, although smaller manufacturers faced a modest slowdown in production.
Despite these positive signs, the S&P Global survey flags ongoing risks. Firms remain confident about maintaining and expanding output in the coming year, yet they remain wary of potential trade disruptions and the threat of higher taxes. Elsewhere, the wider economy faces mounting challenges. Consultancy firm EY has warned that if the conflict with Iran continues into next year, the UK could slide into a recession.
Cost concerns and job market shifts
According to the survey, manufacturers are making efforts to reduce expenses, worried that another energy price surge might soon hit their budgets. Although input costs are still rising, the pace has eased to a five-month low, as supply chain issues have improved. However, job growth has weakened over the past four months, with an uptick in goods demand failing to bring stronger hiring.
Oil prices, measured by Brent crude, dropped nearly 5 percent in early July, driven by hopes of a peace deal in the Middle East. However, recent clashes between the US and Iran have raised fears of renewed hostilities in the region. Rob Dobson, an S&P Global director, described July as a period of 'further encouragement' for firms in the sector, though he noted that the pace of hiring has not matched the rise in output.
Energy prices and the uncertain future
Matt Swannell, chief economic adviser at the Item Club, pointed out that the recent collapse of a ceasefire in the Middle East has pushed oil and gas prices back up, deepening business uncertainty. He warned that the higher energy costs are likely to add pressure to business budgets and could also hit demand. The renewed instability in the region is a key risk.
Rising inflation and weaker wage growth, Swannell added, could further reduce disposable incomes, which might in turn slow consumption. The UK manufacturing sector is currently on an upward trend, but companies remain cautious about what lies ahead.