August's IHS Markit/CIPS Purchasing Managers' Index (PMI) hit a 30-month high of of 55.2 in August, up from 53.3 in July, and the third consecutive month of growth following record lows at the height of the pandemic.
Manufacturing production rose at the fastest pace since May 2014, underpinned by the fastest increase in new orders since November 2017. The domestic market remained the prime source of new contract wins, although new export orders rose moderately for the first time in ten months. Manufacturers mentioned improved demand from the EMEA region, North America and Australia.
However, the growth in demand was not matched by employment figures, with job losses recorded for the seventh month in a row. Employment in the sector declined at one of the steepest rates during the past 11 years, with reductions seen across the consumer, intermediate and investment goods industries. Small, medium and large-sized firms also implemented similarly marked cuts to staff headcounts.
Rob Dobson, Director at IHS Markit, which compiles the survey, warned that the current figures may be short-lived: "Companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as COVID-19 restrictions continue to be relaxed. Backlogs of work fell at an increased rate, hinting at spare capacity, and the labour market remains worryingly weak, with job losses registered for the seventh straight month. The downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply.
“Given the fragility of demand and uncertain outlook, both in terms of COVID-19 and Brexit, policymakers may struggle to prevent a 'surge-then-slump' scenario from developing."
Fhaheen Khan, Economist at Make UK, said that the PMI figures "highlight the sector’s role as the most likely candidate to lead the UK’s economic recovery whilst facing one of its deepest recessions on record."
However, Khan also warned about future prospects, highlighting "a number of concerns that may hinder that recovery remains and that this honeymoon period for above average growth may be short-lived.
"Particularly, as the Job Retention Scheme expires at the end of October, Make UK’s most recent data already indicate job losses are picking up as firms are shedding weight in order to cut costs but risk the possibility of being unable to operate in the coming months. The Government must immediately remodel their approach to the JRS and extend it to the most vulnerable subsectors, such as Automotive and Aerospace, which are dealing with a different schedule for recovery and require a more tailored approach for support.”
Striking a more positive note was Lee Collinson, Head of Manufacturing at Barclays, who said "Following on from July’s welcome figures, after the reopening of factories and easing of lockdown restrictions, comes further proof that a recovery is gaining speed in manufacturing. Driven by improving levels of new orders and customer demand, August data shows production rising at its fastest level for over six years though we still need to hold our breath given the low point this has come from."