NatWest has found that UK manufacturers returned to growth in June, as business confidence improved and input cost inflation eased to a three month low.
The latest NatWest UK Business Growth Tracker showed manufacturing SMEs recorded a rise in output for the first time since October 2025, while growth expectations across UK businesses strengthened during the month. The broader picture remained uneven, however, with weaker service sector activity weighing on overall performance across both SME and mid market companies.
The Tracker, based on the Purchasing Managers’ Index and covering mid market businesses in manufacturing and services, posted 49.3 in June, down from 51.2 in May. That took the index below the 50.0 no change mark for the first time since September 2025, signalling a modest easing in momentum after growth in April and May.
Mid market service providers recorded a renewed fall in activity, with the index at 48.5, the lowest since January 2021. Manufacturing performed more strongly. Mid market manufacturers recorded an index reading of 53.7, with output growth reaching its fastest pace since May 2022.
SME conditions remained difficult, with business activity at 47.8 and new orders falling at the end of the second quarter. Companies cited market uncertainty and rising costs as headwinds, although the rate of decline eased from May and the gap between SMEs and mid market businesses was among the smallest seen for more than three years.
Both SMEs and mid market companies recorded the softest rates of input price inflation since March. Costs remained high by historical standards, reflecting raw materials, energy, and transport prices, but the easing from recent peaks helped support a more constructive outlook.
Export expectations were also positive. Around 37% of businesses expect export sales to increase over the next year, compared with 15% anticipating a decline. Companies cited plans to expand in overseas markets, particularly Europe and the US, with AI investment, product innovation, and hopes of reduced trade frictions identified as growth opportunities.
Sebastian Burnside, NatWest’s chief economist, said: “Manufacturing businesses have faced a lot of headwinds in recent years, from supply chain uncertainty and changing tariffs to the latest energy shock, so the growth they’ve reported in June is both encouraging and desperately needed. Businesses across all sectors have been grappling with higher costs this year. If the modest fall in pricing pressure shown last month can continue, then it could help growth momentum to build in the second half of the year.”
Andy Gray, managing director of commercial mid-market at NatWest, said: “While momentum eased slightly in June, the mid-market continues to show resilience. Manufacturing output returned to growth, confidence improved and cost pressures moderated. The Mid-Market Growth Council continues to highlight the significant contribution these businesses make to the UK economy and the opportunity to unlock further growth through the right support, investment and policy environment.”
The figures provide a more nuanced view of the UK economy than a single headline index can show. Manufacturing appears to be benefiting from improved output and export expectations, while services remain weaker and SMEs continue to face demand and cost challenges. That divergence is important because the UK economy is heavily service led, while manufacturing carries outsized weight in productivity, exports, regional investment, supply chains, and industrial strategy.
Manufacturers have already been under strain from weak orders and persistent input costs. In Factory orders deepen manufacturing cost squeeze, order books and cost pressure pointed to a difficult trading environment. The NatWest data suggest some relief, but not a full recovery.
The easing in input inflation will be watched closely. Manufacturers have been exposed to energy volatility, freight costs, raw material prices, currency moves, and tariff uncertainty. If cost pressure continues to ease, companies may have more room to rebuild margins, quote competitively, and invest in capacity. If the improvement proves temporary, confidence could weaken quickly.
The export findings are important because international demand can offset softer domestic conditions. Plans to expand into Europe and the US suggest companies are still looking beyond defensive cost management. AI investment and product innovation also point to a broader effort to improve productivity and differentiation.
Energy costs remain a structural constraint. In Energy costs threaten UK manufacturing base, high operating costs were linked to competitiveness and investment risk. Output growth in one month does not remove the long running question of whether UK manufacturers can compete on energy, skills, capital investment, and supply chain depth.
The service sector weakness tempers the positive signal. A manufacturing rebound can support confidence, but broad based growth will require demand to improve across business services, consumer services, and smaller companies. The decline in SME activity and new orders shows that many companies remained cautious at the end of the second quarter.
The second half of the year will test whether June’s manufacturing growth is the beginning of a stronger trend or a short lived improvement after a difficult period. The data show a sector regaining some momentum while the wider business environment remains constrained by costs, uncertainty, and uneven demand.
You must be logged in to post a comment.