UK private-sector growth slowed in September while inflationary pressure intensified, leaving businesses facing weaker demand growth, persistent costs, subdued hiring, and interest-rate uncertainty heading towards the autumn Budget.
S&P Global’s flash purchasing managers’ index showed business activity expanding for a third consecutive month, but the headline output index fell from 52.5 in August to 51.7 in September. A reading above 50 indicates expansion.
The third-quarter average of 52.1 was stronger than the 50.5 average recorded during the previous quarter, suggesting the economy continued to grow. S&P Global said historical comparisons with the survey were consistent with approximately 0.2% GDP growth during the third quarter, although September itself pointed to a slower pace.
Economist Chris Williamson described the latest figures as a combination of “sluggish economic growth and intensifying inflationary pressures”.
Both manufacturing and services continued to expand but lost some momentum. Computing and IT services remained the strongest-performing area in the survey, while financial services weakened amid higher market interest rates and financial-market volatility. Business and consumer-facing services recorded better growth.
Companies cited energy prices, wider operating costs, geopolitical uncertainty, borrowing costs, and uncertainty about domestic policy ahead of the Budget as constraints. Some reported that spending and investment decisions had been postponed while they waited for greater clarity.
Hiring remained under pressure. Employment fell again, although the rate of decline was unchanged and remained among the weakest recorded since late 2025. The PMI employment index has nevertheless indicated falling staffing levels since the autumn Budget of 2024.
Cost pressure is complicating the outlook. Supply constraints, wages, and higher energy prices pushed average selling prices higher across goods and services during September. S&P Global said the overall rate of price inflation was the strongest since June and was consistent with further pressure on consumer inflation after the 3.1% rate recorded in August.
Services prices are particularly important because the Bank of England monitors domestically generated inflation when deciding whether interest rates are sufficiently restrictive. Manufacturing prices can move sharply with energy and commodity markets, whereas persistent service-sector inflation is more closely linked to wages and underlying demand.
The latest Bank of England decision highlighted that tension. Three of the Monetary Policy Committee’s nine members voted to increase Bank Rate from 3.75% to 4%, while six supported leaving it unchanged. The PMI figures contain arguments for both positions: inflation pressure has strengthened, but economic growth remains weak.
Higher interest rates increase financing costs and can weaken demand, while inflation raises payroll, energy, supplier, and operating expenses. Businesses facing both pressures have less scope to absorb rising costs without reducing margins, passing them through to customers, limiting recruitment, or delaying investment.
Investment was already a weak point in the UK outlook. Recent British Chambers of Commerce forecasts showed business investment remaining subdued, even as its overall GDP expectation improved marginally.
September’s PMI therefore leaves the economy expanding without substantial momentum. The third-quarter picture is stronger than the second quarter, while the latest monthly direction points to slower growth and renewed price pressure.
The next major variables include the Budget, energy and financing costs, and the Bank of England’s response to inflation. Employers making decisions on recruitment and investment enter that period with growth continuing at a modest pace and the cost environment becoming less accommodating.
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