The UK manufacturing sector made a positive start to 2026, as growth of both output and new orders accelerated and business optimism rose to a near 1.5-year high. The seasonally adjusted
S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) rose to a 17-month high of 51.8 in January, up from 50.6 in December and above the earlier flash estimate of 51.6. The PMI has signalled growth for three consecutive months.
Three of the five PMI components were at levels indicating an improvement in overall operating conditions (new orders, output and suppliers’ delivery times). Although levels of employment and stocks of purchases declined further, rates of contraction were slower than in the prior survey month. January saw manufacturing production rise for the fourth consecutive month and at the joint-quickest pace since September 2024 (matching the rate signalled in October 2025). Higher output was linked to improved export sales, a generally stable domestic market and a boost from customer restocking.
Production volumes expanded in both the consumer and investment goods industries, but contracted in the intermediate goods category. Data broken down by company size suggested the expansion was driven by large-sized manufacturers, as SMEs saw production decline for the third month in a row. Underpinning the latest increase in output was a further improvement in new order intakes. Incoming new business rose at the quickest pace in almost four years, with growth registered across the consumer, intermediate and investment goods industries. The level of new export work rose for the first time in four years, amid reports of higher sales volumes to Europe, the USA, China and several emerging markets.
Business optimismThe recent signs of recovery in the UK manufacturing sector had a positive effect on manufacturers' outlooks. Business optimism about the coming year rose to its highest level since before the 2024 Autumn budget, with almost three-fifths (58%) of manufacturers expecting output to increase over the
next 12 months. Confidence reflected hopes for a recovery in market confidence and reduction in geopolitical uncertainty, new product launches, planned investment spending and an expected improvement in export sales. However, several firms also noted concerns about the geopolitical outlook, UK Government policy and tariff uncertainties.
January provided further signs of the manufacturing labour market moving closer to stabilisation. Although staffing levels were reduced for the fifteenth consecutive month, the rate of job loss was the weakest during that sequence. The latest round of cuts were linked to redundancies, non-replacement of leavers, cost savings and efforts to protect margins. Staffing levels rose at investment goods producers, but fell in the intermediate and consumer goods categories. Data broken down by company size definitions signalled ongoing job cuts at SMEs, contrasting with a slight increase in employment at large manufacturers.
Pockets of excess capacity remained present, however, as backlogs of work decreased for the forty-fifth successive month. Manufacturers' supply chains also stayed stretched, as signalled by a further deterioration in average vendor performance. Part of the increase in supplier lead times reflected a pick-up in input buying among manufacturers, as purchasing activity rose at the quickest pace in over threeand-a-half years.
Higher input pricesJanuary saw mild accelerations in the rates of increase in input costs and selling prices. Companies linked higher input prices to rising raw material charges and the pass through of increased costs at suppliers. The prices of energy, food products, freight, metals, packaging and plastics were all
reported as up in price. Average output charges meanwhile rose for the second month running and at a quicker pace than in December.
Rob Dobson, S&P Global Market Intelligence director, said: “UK manufacturing made a solid start to 2026, showing encouraging resilience in the face of rising geopolitical tensions. Rates of output and order book growth accelerated, while new export business rose for the first time in four years, with Europe, China and the USA the main recipients. There was also a positive bounce-back in business confidence, which rose to its highest level since before the 2024 Autumn budget, as manufacturers focussed on opportunities lying ahead despite persistent concerns about the geopolitical environment, Government policy and tariff tensions.
“There was also encouraging news on the jobs front. Although the strongest rise in new business for almost four years was insufficient to fully quell reductions to staff head counts, the rate of cutting slowed to its weakest since job losses started 15 months ago. Cost pressures are creeping higher though, as the pass through of the increased Minimum Wage and employer NI contributions continue to work through the supply chain alongside the rising costs for commodities such as metals.”
UncertaintyRichard Powell, partner at MHA, commented: “January’s PMI figures reflect a sector that is seeing light at the end of the tunnel. The PMI has risen for the fourth consecutive month, suggesting that it is turning a corner. However, there are still signs that it is weighed down by uncertainty, particularly around the geopolitical arena, which continues to play on manufacturers’ minds. That uncertainty may already be denting sales, though if the index holds in the low 50s it remains a broadly positive signal for the start of the year.
We saw momentum building towards the end of last year, and there is underlying optimism across the sector. But manufacturers are clear: they need stability and confidence to invest. Rising energy costs and upward pressure on employment bills show no sign of easing, and the incoming Employment Rights Bill risks adding further regulation and red tape at a time when businesses are asking for support, not additional burden.
The labour market has begun to even out, but businesses are not replacing roles that have been cut which could accelerate a longer-term shift toward automation. But automation requires significant investment; you can’t just rip up the factory floor overnight. It’s still a challenging environment for UK manufacturing, and ensuring policy decisions enable growth rather than constrain it will be critical in the months ahead.”