The UK manufacturing sector experienced a notable turnaround in March, as domestic orders surged, bringing an end to nearly two years of contraction.

According to the latest S&P purchasing managers index (PMI), manufacturing output reached a 20-month high, signaling expansion with a reading of 50.3.

The increase in domestic demand for manufactured goods has been a significant factor in driving this positive momentum. However, challenges persist in the global market, restricting foreign orders. Delays in shipping lanes due to geopolitical tensions in the Middle East, particularly attacks on international shipping in the Red Sea by Yemeni Houthi rebels, have exacerbated these challenges.

While new business inflows from the domestic market saw a mild uptick, overseas demand continued to decline, marking the 26th consecutive month of contraction. Reduced demand was reported from mainland Europe, including countries like France, the Netherlands, Belgium, and Poland.

Despite the overall improvement, manufacturers continued to reduce their workforce, albeit at a slower pace than in previous months. Additionally, imports of raw materials and parts, necessary for the manufacturing process, continued to decline, although at a slower rate.

Looking ahead, expectations for growth remain positive, with manufacturers anticipating further improvements in output over the next 12 months. The optimism regarding future growth is supported by the rebound in orders and sales seen across various sectors, including companies like Rolls-Royce and car manufacturers.

While challenges such as disruptions in global trade and high interest rates persist, the resilience of the manufacturing sector suggests that it is well-positioned to navigate the evolving business environment. Despite ongoing domestic political uncertainty affecting investment decisions, manufacturers remain optimistic about the prospects for growth in the year ahead.