Factory production reaches the highest growth in almost two years

British factory output has risen at the fastest pace in almost two years, although the growth rate has been revised down slightly from initial estimates, a closely watched survey has found.

The S&P Global and Chartered Institute of Procurement and Supply (CIPS) final purchasing managers’ index (PMI) for the UK manufacturing sector rose to 51.2 last month, up from 49.1 the previous month. Although the outcome has been revised down marginally from the initial estimate of 51.3, it surpasses the crucial 50-point threshold that separates growth from contraction and marks the highest level since July 2022.

Experts noted a widespread increase in activity, indicating rising demand for consumer goods, equipment and investment assets as economic conditions stabilize.

Rob Dobson, director of S&P Global Market Intelligence, commented: “The breadth of the recovery is positive, with simultaneous growth in production and new orders across all major subsectors (consumer, intermediate and capital goods) and all company size categories for the first time in just over two years.”

Manufacturers have faced significant challenges due to the sharp rise in interest rates in the UK and globally. Companies often finance the purchase of manufactured goods through loans, which have become more expensive.

“Manufacturing has definitively emerged from the long recession,” said Rob Wood, chief Britain economist at Pantheon Macroeconomics.

Inflationary pressures in the sector persist, with factories raising product prices at the fastest pace in a year. The PMI survey shows that the most significant price increases were observed in the consumer goods and intermediate goods sectors.

Input price inflation, which measures the rate of change in business costs, rose for the fifth month in a row, albeit at a slower pace than in April.

Dobson added: “The latest PMI survey data shows a mixed picture of manufacturer price pressures. At the factory gate, production cost inflation increased for the fifth month in a row and reached the highest level in a year. However, a solid easing in the pace of input cost increases should help prevent these price pressures from becoming entrenched.”

UK CPI inflation fell to 2.3% in April from 3.2% in March, although services price growth remains high at 5.9%.

New orders from foreign companies fell in May, with particularly weak demand from the United States, Germany and the Middle East.

Manufacturing employment levels shrank for the twentieth month in a row, but optimism rose to a 27-month high.