According to the report from IHS Markit/CIPS, July saw a solid improvement in the operating conditions faced by UK manufacturers, as output growth hit a 32-month high 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 seasonally adjusted UK PMI rose to a 16-month high of 53.3 in July, up from 50.1 in June and below the earlier flash estimate of 53.6. Economists had expected an increase to 53.6. The headline PMI – calculated as a weighted-average of five sub-indices – has posted above the neutral 50.0 mark separating improvement from deterioration in each of the past two months.

Manufacturers linked the expansion to a further loosening of the lockdown conditions in place due to the coronavirus disease 2019 (COVID-19). This allowed manufacturers to restart, or raise, production in response to clients reopening. It should be noted that, while a positive start to the recovery, it will take several months of growth to fully recoup the output lost since the start of the pandemic.

Manufacturing production was raised for the second successive month and to the greatest extent since November 2017. Growth was especially marked in the consumer and intermediate goods industries. Investment goods production also rose for the first time in 15 months. In all three subsectors higher production was underpinned by improved inflows of new work received.

New orders expanded for the first time since February, mainly reflecting a strengthening of domestic demand. In contrast, new export business fell for the ninth straight month, albeit to the weakest extent since February. 

Signs of economic recovery and expectations of client confidence strengthening led to improved sentiment among manufacturers during July. Confidence rose to its highest since March 2018, with 62% of companies expecting production to be higher one year from now. Only 12% of firms forecast a contraction. Sentiment strengthened across the consumer, intermediate and investment goods industries.