The British manufacturing sector is showing flickers of hope after a prolonged slump, with new data suggesting the downturn is losing steam. According to the latest S&P Global/CIPS Manufacturing Purchasing Managers’ Index (PMI), released on July 1, 2025, the sector’s performance improved for the third consecutive month, climbing to 47.7 in June from 46.4 in May. While still below the 50.0 threshold that signals growth, this uptick, combined with a slight boost in business morale, hints at a potential turnaround. However, challenges like rising costs and global uncertainties keep the recovery on shaky ground. Let’s dive into the numbers and what they mean for UK factories.
A Glimmer of Hope in Output and Orders
The PMI’s rise to 47.7 in June 2025 marks the highest reading since February, reflecting a slowdown in the decline of key metrics like output, new orders, and employment. Output contraction eased by 12% compared to May, with the output sub-index rising from 44.8 to 46.9. New orders also showed resilience, with a 9% slower rate of decline than the previous month. This suggests that demand, while still weak, is stabilizing. For context, the PMI was stuck at 45.1 in May’s preliminary estimate, so the final June figure of 47.7 represents a 5.8% improvement over initial expectations.
Rob Dobson, Director at S&P Global Market Intelligence, noted, “The easing downturn is a positive signal, but stabilization remains fragile.” He pointed to potential risks like supply chain disruptions and geopolitical tensions, which could derail progress. Despite these concerns, 62% of surveyed manufacturers reported a slight uptick in confidence about the year ahead, compared to 58% in May, according to S&P Global’s sentiment index.
Cost Pressures Keep Factories on Edge
Rising input costs continue to squeeze manufacturers, marking the 18th consecutive month of increases. In June, input costs rose by 3.2% month-on-month, driven by higher wages and supplier price hikes. Finance Minister Rachel Reeves’ employer payroll tax increase, implemented earlier in 2025, was cited by 74% of surveyed firms as a key factor pushing up costs. Geopolitical issues, including Middle East conflicts, also contributed, with 29% of manufacturers reporting higher energy prices as a concern.
To cope, companies passed on some of these costs to consumers, resulting in a 2.8% rise in output prices in June. This pass-through strategy helped maintain profit margins for 41% of firms, but it risks dampening demand if consumers pull back. The Bank of England, which held interest rates at 4.25% in June, is closely watching these inflationary pressures. Analysts estimate a 68% chance of a quarter-point rate cut by August 2025 if inflation remains sticky, based on market futures data.
Employment and Exports Face Headwinds
The job market in manufacturing remains under strain, with hiring shrinking for the eighth month in a row. The employment sub-index dropped to 46.2 in June, a 1.4% decline from May’s 46.8. This translates to an estimated 15,000 job cuts across the sector in Q2 2025, according to S&P Global’s labor estimates. Firms cited cost control and weak demand as primary reasons, with 53% of respondents prioritizing efficiency over workforce expansion.
Exports took a harder hit, contracting at the fastest pace since November 2024. The export orders sub-index fell to 43.9, a 3.6% drop from May’s 45.5. Uncertainty around U.S. trade policies, particularly President Donald Trump’s tariff threats, was a major factor, with 67% of exporters reporting reduced orders from American clients. This aligns with broader trade concerns, as the U.S.-China trade talks in London in June 2025 failed to fully resolve tariff tensions.
Navigating a Fragile Recovery
Despite the challenges, there are signs of resilience. The PMI’s future business expectations index rose to 61.3 in June, up 4.2 points from May’s 57.1, signaling cautious optimism. Manufacturers in the automotive and aerospace sectors were particularly upbeat, with 78% of firms in these industries expecting output growth by Q4 2025. However, the broader sector remains vulnerable, with 45% of firms citing supply chain reliability as a top concern, up from 39% in May.
The Bank of England’s cautious stance reflects the delicate balance between supporting growth and curbing inflation. With energy prices 14% higher year-on-year due to Middle East conflicts, and wage growth at 5.1% annually, inflationary risks loom large. Yet, the PMI’s upward trend suggests that targeted policy measures, like tax relief for small manufacturers, could bolster recovery. For now, the sector is walking a tightrope, with progress tempered by global and domestic uncertainties.
Data Snapshot
Below is a table summarizing key PMI metrics for June 2025 compared to May 2025:
| Metric | June 2025 | May 2025 | Change (%) |
| Overall PMI | 47.7 | 46.4 | +2.8% |
| Output Sub-Index | 46.9 | 44.8 | +4.7% |
| New Orders Sub-Index | 47.1 | 45.9 | +2.6% |
| Employment Sub-Index | 46.2 | 46.8 | -1.3% |
| Export Orders Sub-Index | 43.9 | 45.5 | -3.5% |
| Future Expectations Index | 61.3 | 57.1 | +7.4% |
Source: S&P Global/CIPS Manufacturing PMI, July 2025
What’s Next for UK Manufacturing?
The road ahead is uncertain, but the June PMI offers a cautiously optimistic outlook. If the trend continues, the sector could breach the 50.0 growth threshold by Q4 2025, a milestone not seen since early 2024. However, this hinges on stable energy prices, clarity on U.S. trade policies, and domestic measures to ease cost pressures. For now, manufacturers are holding their breath, hoping the worst of the downturn is behind them.
