UK manufacturers just hit their highest optimism level in 18 months – here’s what changed
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 one-and-a-half-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.
The 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.
“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 US the main recipients,” said Rob Dobson (Director at S&P Global Market Intelligence).
“There was also a positive bounceback in business confidence, which rose to its highest level since before the 2024 Autumn budget, as manufacturers focused on opportunities lying ahead despite persistent concerns about the geopolitical environment, Government policy and tariff tensions.”
He noted that 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 headcounts, 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 aloing,” he said.
The opportunities outweigh the risks right now
One notable theme that has emerged among UK business surveys is a recognition of real risks within the economy, but that the headwinds are worth it.
Commenting on the PMI Cara Haffey (Leader of Industry for Industrials and Services at PwC UK), noted that new export orders have increased for the first time in four years, with heightened activity from Europe, the US, and China and other emerging markets.
“It’s reassuring to see business optimism starting to recover, reflecting a hopeful outlook despite ongoing geopolitical tensions and economic uncertainties,” she said.
“The manufacturing sector appears resilient, facing headwinds with renewed confidence and a focus on future growth opportunities. A key finding from PwC’s Executive survey with Make UK showed 65% of manufacturers believe the opportunities will outweigh the risks in 2026.
“The sector has started the year off strong, pressures such as employment levels, supply chain resilience and costs, will require business leaders to remain agile, innovative and focus on growth plans.”
