Manufacturers have spring in their step as sector shows green shoots of recovery

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has risen to 50.3, Mike Thornton, national head of manufacturing at RSM UK, said: 'The manufacturing PMI in March showed green shoots of recovery, rising to 50.3, up from 47.5 in February and the highest level since July 2022 . It is also significant as it the first time in 20 months that the industry hasn’t contracted – reflecting positive signs of stabilisation.  

'More encouragingly, this latest rise has been driven by upticks across the board with all indices moving in the right direction. This demonstrates that businesses are starting to bounce back after reaching their lowest point, however one of the most positive increases was the jump in new orders to 47.7. This was highest level in almost a year and indicative that demand is growing. In addition, backlogs of work saw a steep rise to 44.1, up from 38.5 in February.

'However, despite these green shoots of recovery, the industry is still in its infancy when it comes to growth and building back margins. Recovery will take time, but to ensure this is established long term, manufacturers need an industrial strategy. This would equip manufacturers with the knowledge and empower them to make better investments, inform their decision-making and enhance overall industry confidence. Government should also consider a holistic approach to developing a strategy which includes a plan for growth opportunities and risk management, especially considering recent geopolitical challenges and their knock-on impact on global supply chains.

'With no sign of an industrial strategy announcement in last month’s Spring Budget, manufacturers will be hoping that political manifestos in the run up to the general election will provide some clarity of the direction of travel for the future government.'

Tom Pugh, economist at RSM UK, said: 'The strong rise in S&P/CIPS Manufacturing PMI to 50.3 in March is encouraging. The PMIs are still pointing to a return to growth in the first quarter of this year, adding to evidence that last year’s recession is already over. We expect the economy to gradually pick up steam over the rest of the year as lower inflation, falling interest rates and tax cuts boost consumer spending.

'Indeed, we expect growth to come in at 0.2% in Q1 making last year’s recession one of the smallest and shortest on record. Businesses are also clearly feeling confident about the future. The future output index rose to 75.9. 

'In terms of the inflation outlook, the input prices balance ticked up to 52.9 and the output prices balance rose to 52.4. Both are still at levels consistent with inflation falling back to the 2% range. Indeed, we expect inflation to fall below 2% by April, setting the stage for an economic recovery in the second half of the year. What’s more, the decline in the employment index ticked down to 50.0 suggests that hiring demand is flat which should contribute to lower wage growth. 

'Overall, the PMIs paint a picture of a fragile economic recovery. It will probably not be until the second half of the year when growth picks up sharply lower inflation, falling interest rates and tax cuts should kick start consumer spending, which should then flow through to an improvement in business confidence and the rest of the economy.'