Manufacturing optimism highest for a year as economic conditions ease

Stabilising demand and improving supply chains have boosted manufacturing production and optimism, according to the latest PMI.

The S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index read 49.3 in February, up from 47.0 in January, but below the neutral mark of 50.0 for the seventh consecutive month.

However, the PMI showed a rise in output for the first time in eight months, demonstrating a recovery in both supply chain constraints and demand.

Consumer and investment goods manufacturing were the only industries to see new orders increase, but rates of decline in production and new business were the weakest for the last nine months.

Business sentiment in the sector improved for the third month running, to its highest level in a year, with almost 60% of companies forecasting higher production a year from now, compared to just 10% anticipating a downturn.

The outlook reflected expectations of improving economic conditions, new product launches, planned investment, reduced supply chain issues, and shortening lead times for the first time since June 2019. Companies reported improvements in material availability and vendor capacity.

Despite average purchasing costs rising once again, the rate of inflation eased to its lowest since July 2020, though reports of price increases for electronics, energy, food, metals, packaging and timber remained widespread. 

Purchasing activity, stocks of inputs and finished goods inventories also fell, due to efforts to control costs, minimise holdings and dismantle safety stocks. 

John Glen, chief economist at the CIPS, said: “The manufacturing sector reported a more upbeat assessment of the state of play for makers in February and output rose for the first time in eight months. A stronger global economy reflected in less caution in the UK marketplace and though new order levels were still deteriorating, the falls were less marked. 

“Optimism about business in 2023 was also the highest for 12 months. Whilst some companies were still holding on by their fingertips, managing cashflow through staff cuts and reduced costs, others were feeling confident enough to invest in operating capacity in a more stable trading environment.”

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