Optimism grows for UK businesses
UK businesses kicked up a gear in January, showing encouraging resilience in the face of recent geopolitical tensions, a flash PMI by S&P Global shows.
Companies are reporting higher demand, both from home and export markets, which has driven output growth to the fastest since April 2024. Firms are also reporting the greatest optimism about the business outlook since before the 2024 Autumn Budget.
The January flash PMI is up to a level indicative of a robust quarterly GDP growth approaching 0.4%.
While growth continues to be driven by the service sector, and in particular financial services and tech, the manufacturing sector is also continuing to report a gathering recovery aided by resurgent demand, with goods exports notably rising for the first time in four years.
The good news was tempered, however, by the upturn in order books failing to stem a steep loss of jobs, which companies commonly blamed on the need to reduce high costs.
These cost pressures were again often linked to government policies relating to higher National Insurance contributions and the Minimum Wage, and led to an especially steep further drop in hospitality jobs.
High staffing costs were also widely reported as a key cause of higher selling prices, hinting at an intensification of price pressures at a level above the Bank of England target.
On the up
UK businesses are starting 2026 with the fastest output growth since April 2024.The PMI headline Composite PMI Output Index rose from 51.4 in December to 53.9, a 21-month high and one of the best readings since the 2022 rebound in business activity after the COVID-19 pandemic.
The current PMI is broadly consistent with GDP growing at a near 0.4% quarterly rate in January, representing a marked improvement on the modest 0.1% gain signalled for the fourth quarter as a whole.
New orders growth also ticked higher, reaching the fastest since October 2024, boosted in part by the largest (albeit still modest) rise in exports since July 2024.
January’s upturn was led by the service sector, where business activity growth jumped higher to reach the strongest since April 2024 amid improved inflows of new business. Financial services and tech companies again reported the strongest expansions.
However, the upturn also reflected a further improvement in manufacturing sector performance. Factory output rose for a fourth successive month in January, reviving after a nearly year of continual decline, rising at the second-steepest rate since September 2024.
Even more encouraging for the goods-producing sector was a jump in new orders, which posted the largest monthly gain for nearly four years. New export orders for manufactured goods rose for the first time in four years, growing at a rate not seen since August 2021.
Higher activity levels and rising inflows of new business helped drive an improvement in business expectations about growth over the coming year to the highest since September 2024, after which the policies announced in that year’s Autumn Budget dampened the business mood. Optimism regarding future output rose to its highest for over a year in both manufacturing and services.
The improving order book situation also helped stabilize firms’ backlogs of work, which showed only a marginal decline for a second successive month in January. This contrasts with a period of steeply declining backlogs of work seen over the prior two years.
