UK manufacturing hits two-year high in July

British factories experienced their strongest performance in two years during July, according to the S&P Global UK Manufacturing Purchasing Managers’ Index (PMI), which rose to 52.1 from 50.9, marking the highest reading since July 2022 and surpassing the preliminary flash reading of 51.8.

The increase in the PMI reflects the fastest growth in output and new orders since February 2022. Additionally, manufacturers have started hiring again, marking the first staff increase in 22 months.

The positive shift in business sentiment follows the Labour Party’s substantial election victory under Prime Minister Keir Starmer on July 4.

However, the survey also noted rising cost pressures, with input and output prices reaching their highest levels since the first half of 2023.

These inflationary pressures are partly attributed to ongoing disruptions in international shipping, particularly in the Red Sea, due to attacks by Yemen’s Houthi militants. Many vessels are rerouting around the southern tip of Africa to avoid the Red Sea route to the Suez Canal.

The Bank of England is set to announce its interest rate decision for August at 11:00 GMT. Economists anticipate a potential quarter-point cut, the first reduction since 2020, with markets assigning a 65 per cent chance to this outcome.

Rob Dobson from S&P Global Market Intelligence noted that while UK manufacturing is showing encouraging signs, inflationary pressures remain a concern, impacting the otherwise positive economic picture.

Attribution: Reuters  & PMI survey