Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which decreased marginally to 51.7 for August, down from 51.9 in July, Emily Sawicz, Director and Industrials senior analyst at RSM UK, said: “Today’s PMI data points to a manufacturing sector that remains in moderate expansion, with improving demand conditions helping to stabilise activity after growth slowed through the summer. However, the pace of expansion remains relatively modest by historical standards.

“Manufacturers are benefiting from areas of structural demand, including investment linked to data centre construction and wider infrastructure projects. At the same time, lower supply chain disruption is reducing some of the operational pressures that businesses faced earlier in the year. These factors should help to support production levels heading into the second half of 2026.

“Despite expected improvement, there are still clear headwinds impacting the sector. The inventory building and front-loading that boosted activity in April and May continues to unwind, while export markets remain challenging amid global trade uncertainty. Higher labour costs, elevated input price inflation and a weakening UK labour market are also likely to weigh on confidence and investment decisions.

“A reading of 51.7 would signal that the sector remains on a positive trajectory, but the moderation from May’s peak suggests manufacturers are entering a period of steadier, slower growth. The key question for the rest of the year is whether improving domestic demand and investment can offset ongoing pressure from exports, costs and ongoing geopolitical uncertainty.”

Thomas Pugh, chief economist at RSM UK, said: “The upwards revision to the manufacturing PMI is further evidence that the current resurgence in the sector is about more than just restocking ahead of disruptions from the Iran war, which in turn boosted the employment balance to a two-year high.

“Admittedly, the second half of the year is likely to be tougher. Natural gas prices continue to grind up, with the stock of natural gas at their 10-year minimum, the potential for further price rises is obvious. Inflation will also rebound to 3.7% later this year, which will prompt real household incomes to stagnate crimping demand for consumer goods.

“However, underlying demand should be relatively resilient, with the PMI showing that new orders in the capital goods sector reached a 51-month high, likely as AI investment continues and defence spending across the world ramps up. For Andy Burnham, the challenge is following up on big ideas of stronger defence spending and reindustrialisation with tangible policies that will boost growth.”

Related news