UK Manufacturing Signals Resilience Amid Easing Supply Bottlenecks, Inflationary Pressures

The British manufacturing sector indicated a resilient performance at the middle of the first quarter as the activity neared stabilization, led by a renewed rise in output on the back of sustained client demand and improved supply chains along with easing inflationary pressures, the final results of the purchasing managers’ survey by S&P Global showed Tuesday.

The S&P Global/Chartered Institute of Procurement & Supply manufacturing Purchasing Managers’ Index rose to 49.3 in February from 47.0 in January. However, the index has remained below the neutral 50.0 mark. The score was slightly above the flash estimate of 49.2.

“Manufacturers benefited from growing signs of a global economic recovery and the easing of COVID restrictions by China,” Rob Dobson, Director at S&P Global Market Intelligence, said.

“This process of economic revival, alongside signs of inflation peaking and reduced recession fears, should hopefully help UK manufacturers eke out further growth in the coming months.”

Production rose for the first time in eight months in February, indicating signs of firming client demand, especially in the consumer and investment goods segment.

New orders continued to fall in February, though the rate of contraction was only marginal and the weakest in the current nine-month sequence of decline. The overall downward trend was largely attributed to the cost-of-living crisis and weaker export order intakes.

Similarly, the rate of fall in new export orders eased sharply to its weakest since March 2022, as the overseas demand was fruitfully influenced by the revival in global economic conditions and the reopening of China from pandemic related restrictions.

UK companies reported improvements in material availability and vendor capacity in February. The survey data showed that the average vendor lead times shortened for the first time since June 2019.

On the price front, cost inflation eased for the fifth successive month to its lowest since July 2020.

Nevertheless, overall prices rose in a broad number of categories, including items such as electronics, energy, food stuffs, metals, packaging and timber. Selling prices also grew at the slowest pace in two years.

In February, manufacturers reduced workforce numbers, purchasing activity, stocks of inputs and finished goods inventory, mostly due to efforts to control costs, minimize holdings and dismantle safety stocks.

The outlook for the manufacturing sector strengthened in February, as almost 60 percent of companies forecast production would be higher in 12 months’ time, compared to only 10 percent anticipating a downturn.

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