Irish manufacturing sector sentiment jumped to its highest level since January last month as factories dealt with a surge in new orders, AIB said, defying a “muted” and uncertain international demand environment stemming from the Iran war.The sector saw its fastest rate of order growth in 4½ years during August, according to the bank’s latest purchasing managers’ index (PMI). The report is based on a survey of more than 250 manufacturing businesses.At 55.4, the headline index was up by 0.3 points from July, as factories boosted output in response to rising demand. Any figure above 50 signals growth, while a number below that points to contraction.AIB said the momentum was mostly driven by a sharp increase in new orders, which rose at the fastest pace observed since April 2022. However, the “steep rise” in new business was recorded despite further signs of muted international demand in August, according to the report. Irish manufacturing firms reported only a modest increase in export orders and “at a much weaker pace than total new business amid reports of uncertainty caused by the war in the Middle East”.Factories increased production levels to meet rising demand in August, marking the tenth consecutive month of expanded output, AIB said. Meanwhile, manufacturing firms reported another month of “significant supply chain disruption”, stemming from the war in Iran, which lengthened purchasing lead times. “Panellists reported transportation delays, in some cases directly linked to the war in the Middle East,” the bank said. “Some firms also reported general capacity constraints in supply chains.”[ Consultants head for a showdown with their own clients as AI upends industryOpens in new window ]Alongside the supply chain issues, factories reported another sharp rise in input costs, particularly for fuel, transportation and energy, more generally. However, due to robust demand, “many firms were able to increase selling prices and protect margins, but output price inflation eased to a five-month low”, said AIB chief economist David McNamara.Looking ahead, McNamara said: “Irish manufacturers’ assessment of the outlook for activity levels over the coming year remains broadly optimistic. Around half predict an increase in output over the next year, while only 7 per cent forecast a reduction. Manufacturers cited positive sentiment regarding new orders growth.”