More than a century has passed since the UK was known as ‘the workshop of the world’. Manufacturing’s share of the economy is at best 10% today, half of what it was in 1990, as the nation relies on strength in services. Yet pockets of resilience remain among factories, amid persistent structural and cyclical pressures.
It would be premature, not least while international relations and input prices remain volatile, to call recent data a sign of recovery. Encouragingly, though, it points instead to a sector that is stabilising at low levels for the first time in ages.
The S&P Global/CIPS Manufacturing PM Index was 51.7 in February (51.8 in January), marking a fourth consecutive month above the 50.0 threshold that separates expansion from contraction. Output has now increased for five successive months, with growth reaching a 17-month high, supported by a pick-up in new business and a notable improvement in export orders.
Overseas demand has risen at the fastest pace in over four years, with manufacturers reporting stronger buying from North America, parts of Asia and selected European markets. This has helped lift overall business confidence, with close to three-fifths of firms expecting output to increase over the coming year.
However, this improving sentiment sits uneasily alongside more sobering near-term indicators. Output volumes still fell in the first quarter, echoing the weakness highlighted in earlier data, even as forward-looking balances begin to steady. The picture, in other words, is “less bad” rather than genuinely strong.
Cost pressures remain the chief concern. In particular, renewed unease in energy markets—most notably gas prices—has prompted warnings from manufacturers that further production cuts may be unavoidable if costs remain high. Energy-intensive subsectors are especially exposed, and many SMEs have limited ability to pass on these increases. At the same time, broader input cost inflation has picked up again, with rising prices for metals, components and labour continuing to squeeze margins.
Job market dynamics underline the fragility of the recovery. Employment in the sector continues to decline, extending a run of job losses that now stretches well over a year, albeit at a slower pace. Firms remain cautious on hiring, reflecting both cost pressures and uncertainty over the durability of demand.
Trade is still a double-edged sword. While export orders have improved, the global backdrop is unpredictable. Ongoing geopolitical tensions, shipping disruption and tariff uncertainty—particularly involving the US —continue to cloud decision-making. At the same time, there are emerging opportunities: closer UK–Europe supply chain integration and the push towards next-generation manufacturing (including AI, advanced engineering and green technologies) are beginning to shape a more positive medium-term narrative.
Set against this, the structural challenges facing UK manufacturing are unchanged. The sector’s heavy reliance on SMEs constrains access to capital, skills and investment in productivity-enhancing technologies. While larger firms are better placed to take advantage of improving export conditions, smaller manufacturers continue to lag behind—a divergence that is becoming more pronounced in the latest PMI data.
Looking ahead over the next two to three quarters, expect subdued growth with intermittent volatility. While stats suggests that the sector has stepped back from the brink, but momentum is modest and easily disrupted.
In that context, the insolvency backdrop remains a live concern. Although headline numbers have yet to re-accelerate sharply, the underlying conditions—compressed margins, elevated input costs and uneven demand—suggest that financial resilience will continue to be tested.
For manufacturing and engineering businesses, the message is a familiar one: cautious optimism, but no room for complacency. Specific areas that manufacturers and engineering businesses should review at this stage include:
- Cash flow and working capital
- Leasing and funding of production lines
- Asset finance
- Factory premises and their purchase or rent
- Assessing available financial support for R&D
- Grant application support
- Managing exchange rate fluctuation
- Operational efficiency
- Invoice financing
Early engagement with strategic options—whether operational restructuring, refinancing or contingency planning—remains critical while control still rests with stakeholders.
This article is written by Toby Horne, analyst at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.