UK manufacturing growth moderated in June as shipping delays and increased freight costs impacted exports. Despite this, companies remain optimistic about a market recovery, although demand from North America, China, the Middle East, and parts of Europe has declined.

For the second consecutive month, factories increased activity, but at a slower pace than in May. According to the S&P Global/CIPS UK purchasing managers’ index (PMI), the sector’s output measured 50.9 in June, slightly down from May’s 22-month high of 51.2. A reading above 50 indicates expansion.

The PMI survey revealed increased production volumes driven by a rise in new domestic orders and ongoing efforts to clear work backlogs. However, new export orders fell for the 29th consecutive month, with declines noted from the United States, China, and mainland Europe.

Rob Dobson, director at S&P Global Market Intelligence, highlighted the positive domestic market performance: “The UK manufacturing sector is experiencing its strongest growth in over two years. June’s output and new order growth were robust, mirroring May’s highs. The domestic market continues to be a rich source of new contract wins, but the weak export performance is concerning, with manufacturers struggling to secure new business in key markets.”

S&P attributed part of the export decline to shipping delays and rising freight costs, often caused by attacks on container vessels in the Red Sea by Houthi rebels. Companies also reported price increases in inputs such as energy, food, metals, packaging, paper, plastics, and timber.

Peter Arnold, chief economist at EY UK, commented: “June saw another strong month of output growth, with only a slight dip from May’s high. New orders are growing steadily, but global shipping bottlenecks have pushed transport costs up, leading to the highest input price inflation since January 2023. While shipping disruptions have raised inflation concerns in 2024, core goods inflation has remained lower than expected, which may allow the Bank of England to cut interest rates soon.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, noted the sector’s resilience: “Despite downward revisions to output, the figures show the sector is recovering solidly.”