Potential Stabilisation In Future Production Trends

The orders-to-inventory ratio rose sharply, reaching its highest since August 2024, indicating potential stabilisation in future production trends. Both input costs and selling prices showed a minor decrease, indicating a potential easing in inflation pressures.

Despite these positive indicators, manufacturers remain cautious. Concerns persist about heightened geopolitical tensions, weak global markets, and uncertainty in government policy, which could affect future demand and supply chain reliability.

The latest UK manufacturing figures tell us a few things at once. The headline PMI number, while still below the 50.0 threshold that would suggest expansion, did tick upwards from before. That means conditions remain subdued but are not worsening at the pace we’d seen earlier this year. A move from 46.4 to 47.7 in a single month isn’t transformative, but it breaks a deterioration trend that had been making it harder to interpret longer-term directionality.

Now, what caught our eye more than the headline was the shift in business sentiment. Optimism has picked up to the most confident level since February, nudging up despite output and orders still falling. This signals that many firms expect better conditions in the quarters ahead. That doesn’t mean they are going to invest heavily or expand right away, but the groundwork for stabilisation is being quietly laid—at least internally. When forward-looking data and lagging indicators start to decouple like this, it often means the worst of a cycle is either over or fading.

Challenges And Opportunities Ahead

The sharp uptick in the orders-to-inventory ratio is more than just a statistic. It points to producers drawing down current stock faster than they’re taking in new orders, which usually precedes restocking. If we’re right, and firms begin rebuilding inventories soon, that could nudge output indicators higher—even in the absence of major demand shifts. It’s a basic but useful signpost of change just beneath the surface.

Price data told a mildly encouraging story. Input costs and output prices both edged down, giving us a picture of easing price pressures throughout the supply chain. That doesn’t make everything better overnight, particularly with rate expectations still tied to broader inflation indicators, but it’s a small step in the right direction—one that may give policymakers a bit more scope to stay steady for now.

There are still headwinds that aren’t likely to ease in the near term. Firms remain weighed down by nervousness around geopolitical flare-ups and uneven global growth. These aren’t theoretical risks—they are active variables influencing contract lengths, supplier confidence, and delivery times. Add to that domestic policy noise, and it’s clear why managers remain hesitant to commit to longer term expansion.

We see plenty of implied opportunities in the compression between sentiment and actual output data. When assessments trend one direction and behaviours lag behind, something eventually gives way. Watching how closely short-term hedging shifts in response to firm-quoted forward prices could offer valuable early warnings. Recent price momentum, coupled with cautious output expectations, sets up a potential window for range-based positions that capture volatility without requiring full directional bets.

Staying nimble remains key here. With firm cost bases softening and futures pricing still catching up, there may be scope for sharp repricing in either direction depending on the next batch of global trade figures. In the near term, spreads built around gradually widening order volumes may deserve more attention—particularly those tied to machinery or input-sensitive sectors.

If interest rate assumptions shift even modestly on upcoming consumer data or minutes commentary in the next fortnight, short-maturity contracts could react quicker than they have done so far this quarter. We’d pay attention to anything that changes how inflation dynamics are priced in—especially in contracts under six months.

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