Manufacturing growth loses momentum as economic risks loom

The manufacturing industry experienced a slowdown in growth during August, as smaller companies found it difficult to secure new orders. The Purchasing Managers' Index (PMI) for the sector fell from 51.9 in July to 51.7 in August, suggesting that activity had decreased. Despite this drop, the PMI remained above the neutral 50 mark, indicating that the sector's output had grown. Over the past 10 months, the PMI has shown consistent improvement following a period of output contraction in much of 2025.

Rob Dobson, director at S&P Global, expressed cautious optimism, noting that business confidence had reached a six-month high. Job creation in the manufacturing sector reached its strongest level in two years, providing a positive indicator for the country's employment landscape. Dobson suggested that the slowdown in the PMI was primarily due to reduced emphasis on maintaining precautionary stockpiles as economic uncertainty diminished, particularly as both domestic and foreign clients demonstrated a willingness to spend, albeit with considerable caution.

The increase in employment was attributed to higher order intake and efforts to clear backlogs, according to researchers. However, larger manufacturers outperformed smaller producers, with the latter experiencing declines in output and new order intakes. Cara Haffey, who oversees industrials at PwC UK, highlighted that businesses would be more concerned about sustaining recent positive results, emphasizing the importance of keeping energy costs low and capitalizing on improved demand.

Haffey stated that ensuring a smooth transition of policy commitments into lower costs, greater certainty, and stronger incentives for investment would be critical for the sector's future. Matt Swannell, chief economic adviser to the ITEM Club, warned that rising energy prices would continue to impact business costs. Swannell predicted that the rest of the year would be challenging for the manufacturing sector, noting that the conflict in the Middle East remains a significant source of uncertainty.