The UK manufacturing sector remained in contraction in August, with the PMI slipping to 47.0, its lowest in three months and below the neutral 50.0 mark for the eleventh consecutive month. New orders fell sharply, with both domestic and export demand weakening. Export business contracted for the forty-third consecutive month, the steepest in intermediate goods in two years.

Production volumes showed some resilience, with output declining only marginally and intermediate goods even recording modest growth. However, weak client confidence, tariff uncertainties, and rising labour costs continued to put pressure on demand. Job losses extended into a tenth straight month as firms cut staff in response to reduced workloads and higher employer costs from minimum wage and NICs increases.

Supply chains added further strain, with lead times lengthening due to shipping delays and rerouting around the Red Sea. Input prices rose at their fastest pace since May, with manufacturers passing some of these costs on to clients through higher selling prices.

Although optimism reached a six-month high, it remained below its average level. Hopes rest on product launches and stabilising markets, yet fears of taxation, energy costs, and policy direction leave the outlook fragile. This latest update leaves the RPI at 23 and the RPI-P at 19, indicating that economic activities continue to outpace the expectations for the UK economy.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The survey covers more than 600 industrial companies and is compiled by the Chartered Institute of Purchasing and Supply (CIPS) and S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the and S&P Global PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.