New insights from the Manufacturing Health Index released by Unleashed reveal that this growth occurred even as small-medium enterprise (SME) business confidence hits a two-year low.
The data indicates that the negative feelings among businesses due to global uncertainties, inflation, and tax hikes may not be entirely warranted.
The index is generated by aggregating data on purchases, sales, and inventory movements from over 600 UK manufacturers, utilizing Unleashed’s inventory management software.
Joe Llewellyn, the General Manager of ERP Small Business at Unleashed and The Access Group, remarked: “Anecdotally, what we’re hearing from some of our customers is that Q1 brought welcome windfalls. Some tariff-affected international customers have turned to UK firms to do business, while others raced to order more before tariff pauses came off. That’s delivered a shot in the arm for some firms, but more importantly we’re hearing that steadily falling bank rates are starting to stimulate the economy, which obviously is very welcome to UK manufacturers who’ve posted a really strong start to the year.”
Despite an increase in sales revenue, profitability indicators like gross margin return on inventory (GMROI) saw a decline. Clothing manufacturers experienced a 53% drop in GMROI compared to the prior quarter and a 36% decrease year-on-year, yielding returns of £4.14 for every pound invested in inventory.
The decline in profits coincided with a rise in excess stock levels, which increased by 76% year-on-year and 51% compared to the previous quarter.
According to the index, average delivery lead times were 19 days, representing a 24% reduction from the previous quarter’s 25 days and a 14% decrease from the same time last year, which was 22 days.
Nevertheless, purchase orders for Q1 2025 totaled 313, down 7% from the same quarter last year when there were 336 orders and a 22% decrease from the previous quarter’s 399 orders.
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When analyzing all twelve manufacturing categories examined by Unleashed, there was a general sales increase of 30% in Q1 2025 compared to Q4 2024, alongside a year-on-year rise of 13%. Profitability also improved by 10% in Q1, with £4.03 earned per pound spent on stock.
The profit margins in the broader manufacturing sector might have been affected by purchasing managers postponing inventory acquisitions due to unfavorable GBP-USD exchange rates earlier in the year. However, the exchange rate had bettered by the end of April.
Excluding the electronics & telecoms and food sectors, which saw declines of 23% and 34% respectively, most manufacturing sectors recorded positive sales growth quarter-on-quarter.
Lead times were reduced across all categories, with Sports & Entertainment leading the way with a 45% decrease.
Moreover, numerous categories noted reductions in excess stock levels, with industrial machinery experiencing the most significant drop at 68%.
