The UK manufacturing sector had its best month since July 2022, as businesses reported higher confidence and domestic demand.
However, a mixture of supply chain delays, weaker demand and political uncertainty are presenting a challenge for manufacturers across the globe.
Highest since Covid
According to S&P’s Purchasing Managers Index (PMI), the UK manufacturing sector posted a score of 52.5 in August, the highest for 26 months.
Any score above 50 indicates growth, while a sub-50 result shows contraction.
Manufacturing production increased for the fourth successive month, with rises in new orders and new business reported.
Domestic demand up
Most of this increase was driven by domestic demand, as new export orders decreased for the 31st consecutive month.
“UK manufacturers are experiencing difficulties in securing new contract wins overseas due to weaker demand from Europe, a slowdown in mainland China, freight delays, competitiveness issues, high shipping costs, global conflicts and political uncertainty,” explained Rob Dobson, director at S&P Global.
“Many of these issues are also impeding imports which, while benefiting domestic suppliers, is causing supply chain-related production constraints as witnessed by a further marked lengthening of supplier delivery times.”
Last quarter, the UK saw an increase in both imports and exports, with sales to Europe and beyond both rising.
Red Sea crisis
The price of shipping also affected manufacturers, as factories reported long wait times and higher costs amid the ongoing Red Sea crisis.
Experts have warned that this crisis could last well into 2025, with Rolf Jansen, CEO of Hapag-Lloyd, saying that the company was planning to manage the effects of the crisis on its business until at least the end of the year.
August saw a sharp rise in input prices generally. These extra expenses were often passed on to clients in the form of higher selling costs.
Despite this, 61% of companies forecast that production would be higher in a year’s time, with only 6% predicting the opposite.
Positive score
Globally, the UK was one of the few countries to post a positive score, joining countries such as India, China and South Korea.
S&P’s Eurozone PMI showed another month of decline for Europe’s manufacturers, with the index registering a 45.8 in August, the same score as June and July.
The Eurozone PMI Index has not shown a score above 50 since July 2022, indicating that European manufacturing has contracted since then.
Germany posted a 42.4 result in August, a five-month low, driven by a “sharp and accelerated” decrease in new orders as customers remained hesitant to place new orders and the demand from the domestic construction sector remained weak.
‘Downhill and fast’
France, another of the EU’s economic powerhouses, also posted a 43.9 score. Fellow EU nations, such as the Netherlands, Czechia and Italy, faced a similar story in August. One small positive was Poland, which saw a slower rate of decline last month.
“Things are going downhill, and fast,” said Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank:
“The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting.”
Eurozone woes
Even Spain, which had experienced eight months of manufacturing growth, posted its weakest numbers in seven months. Greece and Ireland were the only two other EU nations to experience manufacturing growth last month, and Greece remained the only one to have accelerated growth.
New orders and exports fell across most European countries, with only Spain and Greece seeing new exports rise, and factories reported a sharp increase in overall production costs.
China returns to growth
Outside the EU, China had a respectable return to growth, with a 50.4 score in August. The world’s leading manufacturer had experienced a slight fall in July, posting a score of 49.8.
New export orders fell for the first time this year to date, and factories complained of higher supply costs.
Latin American manufacturers in Brazil, Mexico and Colombia also faced challenges, as supply chain issues and weaker global demand cut into their bottom line, while Nigeria and Turkey also saw continued but slowed contraction in August.