The closely watched S&P Global/CIPS UK manufacturing PMI survey rose to 51.2 in May, after falling back to 49.1 in the previous month.
Any reading above 50 means a sector is in growth, while a score below this means it is contracting.
Production expanded at the quickest rate since April 2022, with consumer, intermediate and investment goods registering expansions.
Firms said they were getting more new work than in previous months, while they also reported renewed efforts to complete existing contracts.
Christopher Greenough, Chief Commercial Officer at Shrewsbury pressings and assemblies specialists SDE Technology, said: “It is great to see May PMI figures show the growth of UK manufacturing and new orders hitting a two-year high.
“We are seeing increased orders, and this is driving employment and investment. The UK manufacturing sector is an indicator of a strong and resilient economy, bringing GDP, jobs and supply chain security.
“So, with the election looming, it would be great to see leaders of all parties talk about manufacturing, as it is a vital barometer of the state of the nation.”
Rob Dobson, director at S&P Global Market Intelligence, said: “May saw a solid revival of activity in the UK manufacturing sector, with levels of production and new business both rising at the quickest rates since early 2022.
“The breadth of the recovery was also a positive, with concurrent output and new order growth registered for all of the main subindustries (consumer, intermediate and investment goods) and all company size categories for the first time in over two years.While the latest upturn was dependent on a strengthening domestic market, there were signs of overseas demand also moving closer to stabilisation.”
It comes after a turbulent period for manufacturers, amid post-pandemic supply chain changes, disruptions in the Red Sea and economic instability both at home and overseas. Despite the strong output performance, the data could provide a headache for policymakers at the Bank of England, as prices continued to rise across the sector, in a sign that inflationary pressures have not yet gone away.
Input prices rose again in May, albeit at a slower rate than in April, driving output price inflation to hit a one-year high.
The Bank is looking for signs that inflation is firmly under control across the economy before cutting interest rates.
Growth in the manufacturing sector, which accounts for less than 10 per cent of British economic output, appeared to match that of the much larger services sector, which grew at the fastest rate for nearly a year last month.
Business optimism rose to its highest point since early 2022, with 63 per cent of manufacturers forecasting their output to be higher one year from now.Firms pointed to a continued recovery in the wider economy and improving export orders as reasons to look on the bright side.
However, Caroline Litchfield, head of manufacturing and supply chain at law firm Brabners, said: “May could well prove to be a turning point for UK manufacturing.” after almost two years of weak output.”
“While we are by no means out of the woods yet, manufacturers will be cautiously optimistic for the future given growth in the wider economy, inflation falling to manageable levels and the potential for interest rates to be cut in the coming weeks.
“A confirmed election date is also likely to boost business and consumer confidence, and firms will be hopeful of order books benefiting as a result.
“Longer term though, UK makers will want to see any incoming government setting out how it will help address the skills gap within the industry and support a shift to the modern, sustainable methods of manufacturing which will be the pillars of future growth.”
