UK manufacturing activity remains strong as headwinds mount
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has increased to 51.7 in February, up from 51.8 in January, Mike Thornton, Head of Industrials at RSM UK, said:
“Manufacturers continue to build on momentum from last year as production remains strong at 51.7. With increased output at 52.5 and a healthy order pipeline, including an increase in new export orders, this upward trend in activity looks set to continue. In addition, levels of finished stock are ticking down - highlighting that demand conditions are stronger.
“With JLR back up and running following last year’s cyber-attack and increased defence spending boosting leading players, such as BAE and Rolls Royce, we could be seeing the biggest businesses driving growth. This is a good sign for the middle market supply chains as increased activity at the top will trickle down to boost output at all levels through 2026.
“However, tariff instability returns following the US Supreme Court’s decision that sweeping import tariffs were unlawful leading the US to pivot to introduce a temporary 10% measure under Section 122. Although, these changes bring further uncertainty and supply chain volatility, which is not helpful, these tariffs are more manageable for business.”
He added: “We expected crippling energy costs to persist this year. However, we now fear that input prices driven by oil will rocket on the back of the Middle East warfare which would derail future growth and investment across UK industry; and adds mounting pressure on prices.”
Thomas Pugh, chief economist at RSM UK, said: “The downward revision in the PMI from the flash suggests that tariff turmoil in the US dented sentiment in the latter half of February. Fortunately, the bigger picture is that output is rising at the fastest pace since 2024.
“However, the employment balance still points to manufacturers reducing headcount in February despite output rising for five consecutive months, citing the increased cost of employing someone. This has kept the input price balance elevated. What’s more, if the recent surge in oil and gas prices is sustained this could offset much of the sharp drop back to 2.0% inflation that we currently expect in April.
“For now, we doubt the jump in energy prices is enough to stop the MPC from cutting in March to support the labour market. Beyond that, a sustained rise in energy prices would prevent the Bank cutting any further, despite the traditional response being to “look through” any jump in inflation due to energy prices. The Bank may not feel like it has that luxury right now as inflation expectations remain elevated and memories of the Russia-Ukraine crisis are still relatively fresh.”