UK Manufacturing Growth Accelerates as Export Orders Reach Four-Year High
The UK manufacturing sector has made a robust start to 2026, with activity expanding at its fastest pace in months according to the latest industry data. The closely watched Purchasing Managers' Index (PMI) rose to 51.8 in January from 50.6 in December, marking the strongest reading since August 2024. Any figure above 50 indicates growth within the sector.
Export Orders Show Significant Improvement
In a particularly encouraging development, new export orders increased for the first time in four years during January. The monthly survey of approximately 650 manufacturers revealed that factories reported receiving a higher volume of orders from key international markets including Europe, the United States and China. This export resurgence contributed to overall optimism about the year ahead reaching its highest level since before the autumn budget of 2024.
Rob Dobson, a director at S&P Global Market Intelligence which compiles the survey, commented: "UK manufacturing made a solid start to 2026, showing encouraging resilience in the face of rising geopolitical tensions."
Broader Economic Context
The positive manufacturing data contributes to mounting evidence that the UK economy has strengthened in recent months. A combined PMI survey measuring activity across both manufacturing and services sectors presented the strongest upturn in business activity since April 2024. Official statistics have shown retail sales performed better than expected in December, while GDP rose by an unexpected 0.3% in November.
A separate survey from the Institute of Directors, released on Monday, revealed that economic confidence among its members reached the highest level in eight months during January, rising from -66% to -48%. Although this reading remained negative, it represented a significant rebound from near record lows experienced last year. Business directors' confidence in their own companies increased to 14% in January, up from -4% in December according to the IoD.
Implications for Monetary Policy
This collection of economic indicators will likely influence predictions that the Bank of England will maintain interest rates at their current level of 3.75% when announcing its latest decision. Signs that the economy is gathering momentum are expected to persuade the nine members of the Bank's Monetary Policy Committee (MPC) to hold off on any rate reduction until they can observe more data confirming that inflation is slowing sustainably.
Official figures showed inflation was 3.4% in December, down from the summer's peak of 3.8%, but still some distance from the Bank's target rate of 2% established in November. The manufacturing PMI survey indicated that cost pressures are creeping higher, attributed to increased employers' national insurance contributions since April, a rise in the minimum wage, and elevated costs for commodities including various metals.
Employment and Inflation Considerations
Despite the rise in new business for British factories, companies continued to reduce their staff numbers, although the rate of job cuts slowed to its lowest level in fifteen months. Some MPC members have expressed concern about rising redundancies and figures showing UK unemployment at a near five-year high of 5.1%, suggesting these factors might be sufficient to curb inflation and strengthen arguments for lower borrowing costs.
Traders have placed the probability of any change in interest rates at virtually zero, though some dissent within the MPC is anticipated. External members Alan Taylor and Swati Dhingra are expected to advocate for rate reductions, echoing the divided committee seen in December's decision to cut rates from 4% to 3.75%, where Bank governor Andrew Bailey swung the vote 5-4.
The figures suggest that uncertainty surrounding Chancellor Rachel Reeves's budget announcement in late November has now diminished, after on-off tax rumours related to the statement caused investment and consumer spending to slow according to previous business surveys.
