UK manufacturing shows signs of recovery as output reaches 6-month high
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has increased to 48 in July, up from 47.7 in June, Mike Thornton, Head of Industrials at RSM UK, said: “The latest uptick in the manufacturing PMI marked the highest level since January 2025, showing further signs of improvement and suggesting that the sector is gaining momentum as supply chain tensions ease.
“More notably, the output index has reached 49.5, which could indicate the beginning of a modest recovery phase as production levels start to rebound. This uplift in activity follows the launch of the Industrial Strategy, which outlines the government’s aim to double investment in advanced manufacturing to £39bn by 2035, which should help to drive sustained growth in output and support long-term resilience.
“But, despite growing industry optimism, there remains some caution in the market due to mounting cost pressures in terms of energy, raw materials and logistics, which continue to squeeze margins. Output is also limited by ongoing labour shortages, with CBI data showing that employment in the manufacturing sector fell for the third consecutive quarter. Additionally, there are some uncertainties surrounding the Industrial Strategy, with businesses needing clarity on how the £4.3bn advanced manufacturing funding will be allocated by subsector, as well as the eligibility criteria for the British Industrial Competitiveness Scheme.”
Thomas Pugh, Chief Economist at RSM UK, said: “The rise in the CIPS UK Manufacturing PMI in July, especially in the output balance, is another sign that the sector and the broader economy is recovering from the double whammy of tax and tariff hits in April.
“The recent trade deal between the US and the EU, which imposes a 15% tariff on most EU goods exports to the US, leaves UK exporters in a relatively advantageous position as they are mainly subject to a 10% tariff. However, the 5% difference is marginal and is very unlikely to be enough to prompt a change in firms’ business models.
“There were some positive messages for the MPC ahead of next week’s meeting as well. The employment index dropped again, although it is still above its recent lows, suggesting that the labour market is still weakening. What’s more, despite a rise in the input prices balance, the output price balance dropped, indicating firms are not fully passing through increases in costs. We think a 25bps cut in interest rates next week is a sure bet now.”