UK manufacturing growth slowed to a five-month low in August as smaller producers came under renewed pressure, although stronger business confidence drove hiring to its fastest pace in two years.
The S&P Global UK manufacturing purchasing managers’ index fell to 51.7 in August from 51.9 in July. A reading above 50 indicates an expansion in activity, while a figure below that level signals contraction.
Despite the slowdown, the latest reading marked the tenth consecutive month of growth across the sector, although the pace of expansion was the weakest since March.
Factory output increased for a fifth successive month, supported by stronger inflows of new orders from both domestic and overseas customers.
The headline figures, however, masked a widening divergence between manufacturers. Smaller producers reported falling output and weaker demand for new work, while medium-sized and larger companies continued to expand.
The slowdown was also partly attributed to weaker purchasing of stocks, suggesting some manufacturers were maintaining a cautious approach as energy prices remained volatile following the conflict in Iran.
There were nevertheless signs of improving confidence. Employment in the manufacturing sector increased for a fifth consecutive month and at its fastest rate since 2024, as companies became more optimistic about trading conditions over the coming year.
Rob Dobson, director at S&P Global Market Intelligence, said the sector was still expanding but had lost momentum.
“The rate of expansion in the UK manufacturing sector cooled in August, with output and new order growth losing traction.
“There are still signs for continued optimism, however, as manufacturers reported a positive outlook for the year ahead.
“Business confidence rose to a six-month high and job creation was the strongest for two years.
“This suggests that the slowdown was mainly driven by a reduced focus on maintaining precautionary stocks as economic uncertainty eases, especially as domestic and overseas clients continue to show a willingness to spend albeit with a relatively high degree of caution.”
The outlook remains vulnerable to the consequences of the conflict in the Middle East, particularly through higher energy costs.
Matt Swannell, chief economic adviser to the Item Club, warned that manufacturers could face a “difficult” period as the economic effects of the Iran war feed through into business costs and household finances.
“Higher energy costs will be a particular headwind, with a recent resurgence in oil and gas prices feeding through into higher business cost,” he said.
“Meanwhile, a pick-up in inflation will squeeze households’ spending power.
“The conflict in the Middle East is the main wildcard in this regard, and it remains a key source of uncertainty for business.”
The August figures highlight the conflicting forces facing Britain’s industrial sector. Improved confidence and stronger hiring suggest businesses expect conditions to improve, but higher energy prices and renewed inflationary pressure threaten to weaken demand.
For smaller manufacturers in particular, the combination of softer orders and higher input costs could make the coming months more challenging, even as larger companies continue to expand.
The resilience of manufacturing will therefore depend heavily on whether energy-market disruption eases and whether improving business confidence translates into stronger orders in the months ahead.
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