The UK manufacturing sector ended 2025 on a cautiously positive note, with signs that a fragile recovery is taking hold. The Manufacturing PMI rose to 50.6 in December, its highest level in 15 months, confirming a second consecutive month of expansion. Output increased for a third straight month, supported by stock building and a long-awaited rise in new orders, the first since late 2024.

This recovery, however, remains uneven. Growth was primarily driven by large manufacturers, while small and medium-sized firms continued to contract, reflecting persistent cost and financing pressures. Demand improvements were led by the domestic market, as export orders declined for the forty-seventh month, albeit at a slower pace, suggesting external headwinds are easing rather than disappearing.

Labour market conditions stabilised somewhat, with job losses continuing but at their slowest rate in over a year. At the same time, excess capacity remained evident as backlogs fell again. Cost pressures re-emerged, with rising input prices feeding through to factory gate prices, particularly affecting smaller firms.

Overall, the latest updates point to recovery, shaped by easing uncertainty on one hand and persistent cost and competitiveness challenges on the other as 2026 approaches.

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.