UK manufacturing output hits three-year high

The UK’s recovery from the coronavirus crisis continues as manufacturing output grows at its fastest rate since 2017.

A survey of purchasing managers by IHS Markit shows that output growth hit a 32-month high in July, supported by the sharpest rise in new order volumes since the end of 2018.

Business sentiment also recovered to its highest level in 28 months.

The UK Manufacturing PMI hit 53.3 in July, up from 50.1 in June and well above the neutral 50.0 mark separating improvement from deterioration.

Manufacturers linked the expansion to a further loosening of the lockdown conditions, which allowed them to restart or raise production in response to clients reopening.

IHS Markit notes that while this is a positive reading, it will take many months to recoup the output lost since the start of the pandemic.

July’s growth was particularly pronounced in the consumer and intermediate goods industries, with investment goods productions also rising for the first time in 15 months.

New orders reflecting a strengthening of domestic demand, whereas new export business fell for the ninth straight month.

Signs of economic recovery boosted confidence in the manufacturing sector, which rose to its highest level since March 2018. 62 per cent of companies expected production to be higher one year from now against 12 per cent forecasting a contraction.

Manufacturing employment fell for the sixth month running, emphasising the deep and damaging affect the coronavirus crisis is having on the labour market.

Job cuts in July were linked to redundancies, natural wastage and aligning capacity with current output needs.

Rob Dobson, director at IHS Markit, said: “The UK manufacturing sector started the third quarter on a much firmer footing, with output growth hitting a near three-year high and new orders rising for the first time in five months.

“The recovery strengthened as a loosening of lockdown restrictions allowed manufacturers to restart or raise production.

“July also saw signs of furloughed employees returning to work and customers resuming spending.

“Business optimism also rose to its highest for over two years as companies grew more hopeful that the future has brightened.

“Despite the solid start to the recovery, the road left to travel remains long and precarious. An extended period of growth is still needed to fully recoup the ground lost in recent months.

“This is also the case for the labour market, where job losses are continuing despite businesses reopening. There is a significant risk of further redundancies and of furloughed workers not returning unless demand and confidence stage more substantial and long-lasting rebounds in the months ahead.”