UK manufacturing sector grows at fastest pace in four years in May

(Sharecast News) - The UK manufacturing sector grew in May at the fastest pace in four years, according to a survey released on Monday.

The S&P Global manufacturing purchasing managers' index rose to a four-year high of 53.9 from 53.7 in April, remaining above the 50.0 mark that separates contraction from expansion for the seventh month in a row.

All five of the PMI sub-components - new orders, output, employment, suppliers' delivery times and stocks of purchases - were at levels normally consistent with an improvement in operating conditions for the first time since May 2022.

Manufacturing output rose for the second month in a row, led by expansions in the intermediate and investment goods industries, while consumer goods output fell slightly.

That said, S&P said there are signs the recent growth acceleration could be short-lived as some manufacturers noted that clients were front-loading purchases to mitigate expected price rises and supply chain disruption.

The survey showed there was "substantial" pressure on both input prices and supply chains in May. The rate of increase in purchasing costs accelerated to a near four-year high, reflecting higher prices for chemicals, electronics, energy, foodstuff, fuels, plastics, metals, packaging, paper and timber. Manufacturers also pointed to the Middle East conflict, commodity market gyrations, geopolitical woes, supply chain issues, material shortages, tariffs, rising labour costs and higher taxes.

Rob Dobson, director at S&P Global Market Intelligence, said: "May saw the UK manufacturing upturn gather pace, as growth of production and business optimism both rose to three-month highs.

"The sustainability of the upturn remains in doubt, however. The recent upturn in new order intakes that is driving the expansion in output is heavily reliant on both manufacturers and their clients front-loading purchases to mitigate expected war-related price increases and supply chain disruption. This bounce will fade once customers have built up sufficient safety stocks.

"These price and supply factors are also having a direct impact on manufacturers, with cost inflation rising to a near four-year high and pressure on supply chains leading to material shortages and longer lead times. This will continue to constrain manufacturers and put growth at risk for as long as geopolitical uncertainty, war in the Middle East and risks to key transport routes such as the Strait of Hormuz continue to pose a threat."