Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which rose to 52.8 in October, up from 51.9 in September, Mike Thornton, Head of Industrials at RSM UK, said: “UK manufacturing remains on the road of recovery despite significant cost pressures. A headline PMI of 52.8 points to continued sector growth, as genuine structural opportunities emerge across areas such as defence and AI.

“Defence presents a clear opportunity for growth. The government’s commitment to increase defence spending to 3% of GDP by 2030 creates significant long-term opportunities for UK manufacturers and their supply chains. However, with important detail around delivery still to come, businesses lack the certainty they need to make long-term investment decisions. Further delays risk holding back the very investment that increased defence spending should stimulate.

“AI is also proving a key source of growth. Our latest Investment Monitor in collaboration with Make UK found that for the first time manufacturers rank AI alongside plant and machinery and labour and skills as an investment priority. This indicates a pivotal moment for the sector, as manufacturers capitalise on technology-driven opportunities both within their business and across the wider economy.

“The main headwind for manufacturers lies in rising input prices, with persistently high energy costs continuing to weigh on business confidence. The British Industrial Competitiveness Scheme (BICS) should provide some much-needed relief for the sector against the impact of energy price hikes, with the government confirming it would include backdated payment support. However, not all manufacturers will qualify, and some businesses will have been disappointed that the budget didn't offer greater support.”

Thomas Pugh, chief economist at RSM UK, said: “The output balance of the manufacturing PMI rose to the highest level since 2024 in October, suggesting that the resurgence in manufacturing output is more than just restocking ahead of disruptions from the Iran war. Indeed, manufacturing output has risen by an average of 0.3% per month so far in 2026, compared to stagnation over the last two years.”

“That said, the next six months or so looks tougher. The input price balance jumped to 70.8 as natural gas prices, which also set the price of electricity, have tripled since the outbreak of the Iran war. The good news is that the stronger demand backdrop means manufacturing firms should find it somewhat easier to pass higher costs onto consumers. However, that means we now expect inflation to peak close to 5% in the new year. In turn, the MPC now has little choice but to hike rates on Thursday and at least once more next year to lean against the risk of second-round effects.”

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