The start of the third quarter saw the UK manufacturing downturn show signs of easing. The rate of contraction in output slowed to its weakest in the current sequence of decline and business optimism rose to a five-month high.
There remained risks to the downside, however, including persistently weak domestic and overseas market conditions, subdued client sentiment and manufacturers concerns about
the ongoing implications of government budget decisions.
The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index™ (PMI®) rose to a six-month high of 48.0 in July, up from 47.7 in June but below the earlier flash estimate of 48.2. The PMI has signalled contraction in each of the past ten months.
Four out of the five PMI components remained at levels consistent with a deterioration in overall operating performance (output, new orders, employment and stocks of purchases). Average vendor lead times continued to lengthen, but to the weakest extent in four months.
Manufacturing production contracted for the ninth month running. However, after easing in each of the past four months, the rate of decline was only mild and the weakest during the current downturn. Both the consumer and intermediate goods sectors returned to growth following eight- and five-month sequences of contraction respectively. In contrast, investment goods output decreased at a quicker pace than in June.
Commenting on the latest UK Manufacturing PMI figures, Rob Dobson, Director at S&P Global Market Intelligence: “The UK manufacturing sector is starting to send some
tentatively encouraging signals, with the downturn moderating in July as factory output came close to stabilising and future output expectations hit the highest since February.
“However, it’s clear that there’s no assured path back to strong growth. Clients in the home market often remain unwilling to spend due to cost factors such as higher minimum wages and employer NICs, while export markets are being buffeted by geopolitical stresses and trade and tariff uncertainties.
“The biggest concern remains the labour market, with the rate of job cutting through much of 2025 among the steepest since the pandemic year of 2020.
“With the Autumn budget only a few months away, manufacturers will likely remain cautious and focussed on stabilisation while waiting to see if future budget announcements provide much needed support or further challenges to overcome.”
Dave Atkinson, UK Head of Manufacturing at Lloyds, said: “UK manufacturers continue to face into fast-changing global trade conditions and continued cost pressures.
“Despite this, businesses remain more optimistic about the drive for sustainable growth and plans to accelerate infrastructure projects through the Industrial Strategy. They remain focused on building momentum and making sure they’re ready to capitalise on emerging opportunities as conditions evolve.”
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.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK said:
“This month’s PMI report indicates some much-needed encouraging signs, manufacturing output falls at a slower pace with signs that the downturn is easing. PMI was at a six-month high at 48.0, a small increase from 47.7 in June, along with business optimism which also improved to a five-month high in July. Both the consumer and intermediate goods sectors returned to growth following months of contraction.
“While it is encouraging to see some positive figures, there is no shying away from the challenges which manufacturers continue to face: four out of five of the PMI components (output, new orders, employment and stocks of purchases) remained at a level which is consistent with deterioration. Complex trade conditions, weakened market conditions and rising cost burdens continue to hamper growth and will require manufacturers to incorporate agility and innovation into their operations and transformation plans.”
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