Manufacturers facing export challenges despite improving domestic demand

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has decreased to 50.9 from 51.2, Mike Thornton, national head of manufacturing at RSM UK, said: 'Despite a slight fall, the manufacturing PMI in June continues to show steady signs of recovery at 50.9, after reaching its highest level since July 2022 last month. However, manufacturers aren’t out of the woods yet, as new export orders fell to 48, showing that while many indices have improved and things are moving in the right direction, there’s a disconnect between economic recovery in the UK and globally. While export markets in Europe and China have seen a downturn, we’d expect UK exports to be performing similarly to the US, yet it appears UK manufacturing growth is currently limited to domestic demand, as reflected in last month’s uplift in output to 53.3, up from 52.7 in May. 

He added: 'Input prices also jumped sharply to 56.3 in June, highlighting some fragility in the supply chain, with price pressures remaining a challenge. This could be due to a number of reasons, including UK manufacturers’ reliance on importing materials from Europe, June’s electricity price rises, and increases to national minimum wage rates. But, more encouragingly, it could also reflect increased demand, given the headline PMI has remained above 50 for the second consecutive month, with growth driving competition and therefore impacting prices. 

'Backlogs of work also rose to 46, showing that production output is on the rise, and the industry continues to recover gradually. Additionally, stocks of finished goods fell to 45.2, further implying that consumer confidence and spending are growing. With this week’s general election looming, industry needs the next government to prioritise an industrial strategy, providing manufacturers with a framework to make informed decisions and invest for the future.'

Tom Pugh, economist at RSM UK, said: 'Despite the small tick down in the manufacturing PMI, the sector is still growing, which is good news for the wider economy, especially as it seems to be driven by stronger domestic demand. However, the economy is far from booming and a PMI hovering around 50 just reinforces the need for the Bank of England to cut interest rates in August. 

'Admittedly, the jump in input prices to 56.3 is a little concerning, and is possibly due to energy and shipping prices rising again, but the output prices index ticked down to 53.3, indicating that manufacturers aren’t yet passing these price increases through to consumers. That should mean that goods price inflation remains low in the coming months.'