Manufacturing sector signals encouraging trends

The UK manufacturing sector is starting to send some tentatively encouraging signals, with the downturn moderating in July as factory output came close to stabilising. Future output expectations have hit the highest since February. These developments suggest a potential easing of the difficulties faced by the sector, providing a more hopeful outlook for the coming months.

Challenges in domestic and export markets

Rob Dobson, Director at S&P Global Market Intelligence, commented:

Future output expectations, reaching their highest since February, suggest a cautious optimism within the sector. However, this optimism is tempered by the realities of ongoing cost challenges and the potential implications of future fiscal policies. The anticipated Autumn budget is a critical focal point, with manufacturers keenly awaiting any policy shifts that could either bolster or hinder their recovery strategies.

As we look ahead, the UK’s economic trajectory remains fraught with uncertainty. The tentative signs of manufacturing recovery bring a glimmer of hope, yet the path to robust growth is anything but guaranteed. The broader economic landscape is shaped by complex factors, including domestic spending restraints and volatile global trade conditions. With the UK navigating through geopolitical tensions and evolving trade agreements, the pressure on export dynamics is palpable.

Labour market concerns and future outlook

“The UK manufacturing sector is starting to send some tentatively encouraging signals, with the downturn moderating in July as factory output came close to stabilising and future output expectations hit the highest since February.

Key findings:

“The biggest concern remains the labour market, with the rate of job cutting through much of 2025 among the steepest since the pandemic year of 2020. With the Autumn budget only a few months away, manufacturers will likely remain cautious and focused on stabilisation while waiting to see if future budget announcements provide much needed support or further challenges to overcome.”

Employment trends and market challenges

The impending Autumn budget is a critical factor in shaping the future outlook for the sector. Manufacturers are likely to maintain a cautious stance, focusing on stabilisation and cost management as they await potential policy changes. The anticipation surrounding future budget announcements underscores the sector’s need for supportive measures that can bolster confidence and encourage investment.

• Employment falls at faster rate
• Input cost and selling price inflation hold broadly steady

While the outlook indicates some stabilization, the sector’s resilience will be continually tested by external pressures and internal adjustments. The interplay between fiscal decisions and market responses will likely dictate the pace of recovery, making it essential for industry players to remain agile and informed as they navigate this evolving economic landscape.
Manufacturers are thus caught in a delicate balancing act, striving to leverage emerging opportunities while navigating these multifaceted challenges. The current climate demands resilience and adaptability, with businesses continuously reassessing their operational strategies to maintain a foothold in both domestic and international markets.

In the face of these challenges, manufacturers are prioritising strategic workforce planning and skills development to enhance productivity and competitiveness. Companies are exploring innovative approaches to recruitment, training, and retention to mitigate the impact of labour market fluctuations. The ability to adapt to changing market conditions and policy landscapes will be crucial for the sector’s resilience and long-term success.

One of the most pressing issues facing the UK manufacturing sector is the state of the labour market. The rate of job cuts through much of 2025 has been among the steepest since the pandemic year of 2020, raising concerns about workforce stability and long-term growth potential. This trend highlights the ongoing struggle for manufacturers to manage costs in an environment where demand remains volatile and unpredictable.

Economic outlook and future expectations

“However, it’s clear that there’s no assured path back to strong growth. Clients in the home market often remain unwilling to spend due to cost factors such as higher minimum wages and employer NICs, while export markets are being buffeted by geopolitical stresses and trade and tariff uncertainties.

Export markets present their own set of hurdles. Geopolitical tensions and uncertainties surrounding trade policies and tariffs are creating an unpredictable environment for exporters. This has been further compounded by fluctuating demand from key international partners, leading to a cautious approach among manufacturers. The ongoing tariff negotiations and potential for further changes in trade agreements add layers of complexity, necessitating agile strategies and contingency planning.

Despite these positive signals, the UK manufacturing sector continues to grapple with significant challenges in both domestic and export markets. On the home front, consumer spending reluctance is a persistent issue, driven largely by increased cost pressures. Factors such as higher minimum wages and employer National Insurance Contributions (NICs) are weighing heavily on businesses, making it difficult for firms to maintain competitive pricing without sacrificing profit margins.