Manufacturers brace as cost pressures mount ahead of long-awaited Industrial Strategy

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has increased to a three-month high of 46.4 in May, up from 45.4 in April, Mike Thornton, Head of Industrials at RSM UK, said: “The slight uplift in the headline PMI in May suggests that the manufacturing industry has reached its nadir and activity could finally be starting to move in the right direction. Future output expectations jumped sharply to 68.2, alongside an improving outlook for orders, both domestic and export. 

“Although it is welcome to see some signs of stabilisation, businesses remain cautious given global uncertainty and rising domestic costs. Perhaps not surprisingly given trade tensions, the suppliers’ delivery times index fell to 44 which raises concerns about businesses’ ability to fulfil orders should demand gather pace.” 

He added: “While uncertainty and disruption are easing, we’re yet to see genuine signs of a rebound in activity and long-term growth. With the government’s spending review and industrial strategy due this month, we’re expecting policy will clarify manufacturing’s role as a key growth-driving industry, giving businesses the clarity and confidence to make long-term investment decisions.” 

Tom Pugh, Economist at RSM UK, said: “The stabilisation in the manufacturing PMI is welcome, but it is significantly below the services PMI, highlighting the headwinds that the sector is continuing to face. There was also a further fall in the employment balance as firms continue to adjust to lower demand and higher employment costs. 

“But it wasn’t all bad news. The drops in both in the input and output prices balances suggest that April’s surge was a one-off. This will give the Bank of England some comfort, alongside clear recovery in sentiment as the worst of the US tariffs were rolled back or put on pause. 

“That said, the sector is unlikely to make a substantial recovery until there is more certainty about global trade policy.”