February PMI shows manufacturing sector is resilient, says RSM UK

01 March 2023

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has increased from 47.0 in January to 49.3 in February, Mike Thornton, national head of manufacturing at RSM UK, said: ‘The latest manufacturing PMI for February continues the previous month’s upward trend, demonstrating that contraction in the market is slowing. The output index has risen for the second consecutive month, sitting at 51.6, up from 47.0 last month, and now the highest level since June 2022. This latest increase brings further positive news for the sector, which appears to have turned a corner from the downward trend of 2022.

‘With the new orders index seeing a steep increase to 49.2, up from 44.1 in January, and now at the highest level since June 2022, it appears the sector is showing resilience against ongoing inflationary pressures. We expect manufacturing businesses to continue to make slow progress throughout 2023. As input prices fall significantly, from 60.4 to 56.8, and output prices remain relatively stable at 59.1 from 61.3 last month, it’s a big win for the manufacturing sector. This means manufacturers will be in a better financial position as the sector steers away from inflationary pressures with greater control to rebuild its margins in the coming months. Overall, the figures suggest industry optimism is at a 12-month high, and businesses can start to consider their long-term growth plans, safe in the knowledge that market turbulence is easing.’

Thomas Pugh, economist, RSM UK added: ‘The improvement in the manufacturing PMI follows the improvement in the services PMI and suggests the anticipated recession will be mild. Indeed, it’s touch-and-go as to whether the UK falls into a recession at all.

‘However, we are yet to see most of the impact of the huge rise in interest rates over the last year and the PMI hasn’t been the most reliable guide to movements in the economy since the pandemic. For what it’s worth, we still think the UK economy will fall into a mild recession in the first half of this year, before growth resumes in Q3.

‘Even if the UK does avoid a technical recession of two consecutive quarters of negative GDP growth, we will still enter a ‘slowcession’, where growth essentially flatlines. It will probably be the end of 2024 before the UK economy is back to its pre-pandemic size, representing four years of stagnation.

‘Today’s data will support the hawks (economic policy advisors preferring policies that involve higher interest rates) on the Monetary Policy Committee (MPC) who say that interest rates need to rise a bit further to dampen demand and especially to prompt some easing in the labour market. The rise in the composite employment index will be concerning to the MPC as it implies firms aren’t yet shedding labour.’