July saw a ‘solid improvement’ in the operating conditions faced by UK manufacturers, as output growth hit a 32-month high, supported by the sharpest rise in new order volumes since the end of 2018. Business sentiment also recovered to its highest level in 28 months.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to a 16-month high of 53.3 in July, up from 50.1 in June. The headline PMI is calculated as a weighted-average of five sub-indices in which the neutral 50.0 mark separates improvement from deterioration.

Manufacturers linked the expansion to a further loosening of the lockdown conditions in place due to Covid-19, allowing them to restart or raise production in response to customers reopening. Manufacturing production was raised for the second successive month in July, and to the greatest extent since November 2017.

Growth was especially marked in the consumer and intermediate goods industries; investment goods production also rose for the first time in 15 months. In all three sub- sectors higher production was underpinned by improved inflows of new work received.

Signs of economic recovery and expectations of customer confidence strengthening led to improved sentiment among manufacturers during July. Confidence rose to its highest since March 2018, with 62% of companies expecting production to be higher one year from now.

Only 12% of firms forecast a contraction. However, manufacturing employment fell for the sixth month running in July, albeit to the least marked extent since March; where job cuts were registered they were linked to redundancies, natural wastage and ‘aligning capacity with current output needs’.

Rob Dobson, a director at IHS Markit (which compiles the survey), said: “The UK manufacturing sector started the third quarter on a much firmer footing, with output growth hitting a near three-year high and new orders rising for the first time in five months.

The recovery strengthened as a loosening of lockdown restrictions allowed manufacturers to restart or raise production. July also saw signs of furloughed employees returning to work and customers resuming spending. Business optimism also rose to its highest for over two years as companies grew more hopeful that the future has brightened.

However, an extended period of growth is still needed to fully recoup the ground lost in recent months. This is also the case for the labour market, where job losses are continuing despite businesses reopening.

There is a significant risk of further redundancies and of furloughed workers not returning unless demand and confidence stage more substantial and long-lasting rebounds in the months ahead.”

James Brougham, an economist at www.makeuk.org Make UK (the manufacturers’ organisation), said: “UK manufacturers have been eager to embark on the road to recovery, and those efforts would appear to be bearing fruit with improved orders allowing industry the greater degree of confidence it needs to drive output up.

“Nevertheless, industry has been through a profound shock, the impact of which will continue to be felt for some time to come. While the data from one month gives some cause for optimism we are going to need consecutive months of positive performance to recoup the deep losses incurred by the pandemic.”