Where Did This Bounce Back Come From?

It’s a sector that has been blindsided again and again. First, manufacturing firms were hit with COVID-19 lockdowns. Then came a surge in energy prices after Russia invaded Ukraine. Supply chain-issues followed, along with higher interest rates and ultimately inflation. What else could go wrong?

Perhaps the sector has found a way to bounce back. One measure of its health, the Purchasing Managers Index (PMI), has steadily improved over the last 12 months, according to new data. As of October, the PMI was at 49.7, up from around 45 in March. While manufacturing slumped, executives were less willing to invest in new projects, says Ben Frost, a Korn Ferry senior client partner, EMEA. “There hasn’t been a positive outlook for a while,” he says. “But many executives are currently saying we need to activate these plans, and the time is now.”

Part of the turnaround has come from an increase in passenger-vehicle production following an interruption at one UK automaker. Still, experts forecast that the PMI is ripe to surpass 50 before year’s end. A PMI reading of 50+ indicates economic growth in the sector. The UK’s defense and aerospace subsector is also a bright spot, says Rory Singleton, a Korn Ferry senior client partner for the global industrial market. “We have world-leading companies in the subsector that should be seeing investment,” he observes.

British industrial companies are also adopting artificial intelligence. “It’s an opportunity,” Singleton says. He notes that AI can help accelerate the design and development of products, as well as expedite emissions tests. Another application: The tech can test how well a passenger car would perform over one million miles. “Using those types of tools reduces time, and therefore money, which means more profits,” he says. 

Still, AI and its impact on manufacturing looms in the background, with experts unsure what its impact will be on this sector. “The big thing in AI is a lot of people are experimenting with it,” Frost says. “And there’s lots of money and lots of ideas.” But experts worry that industrial companies as a whole haven’t adopted AI to the same degree as other sectors. “It will be a competitive advantage to use AI in manufacturing,” Singleton says. “Those companies that don’t, won’t survive.”

Another challenge for UK-based manufacturers is the ongoing trade war. Trade barriers, including import quotas, eat into exporters’ profits. This in turn limits companies’ ability to invest in new technology or expansion. “We are still facing down tariffs,” Singleton says.

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