UK private sector activity slows more than expected

The UK S&P Global Composite PMI fell to 51.0 in July 2025 from 52.0 the previous month, missing market expectations for a more modest decline to 51.8.

Despite the drop, the index remained comfortably in expansionary territory for the third consecutive month, suggesting that while momentum is softening, the UK private sector is still growing—albeit at a slower pace. According to the flash estimate, the slight overall expansion was largely driven by a solid rebound in the services sector, which rose to 51.2 from a contractionary 48.2 in June.

This improvement helped offset a continued decline in manufacturing output, though the sector's PMI ticked up to 48.2 from 47.7, indicating a marginal easing in contractionary pressures.

At the aggregate level, business output saw a modest month-on-month increase, supported by companies clearing existing work backlogs. However, new orders—both domestic and foreign—fell sharply, marking the steepest decline since April. Export demand was particularly weak, as firms faced growing challenges linked to elevated tariff pressures from the United States amid ongoing trade negotiations.

The deteriorating order pipeline has cast a shadow over the near-term outlook for business activity.

Meanwhile, the labor market showed further signs of strain, with private sector employment falling for the tenth consecutive month. Companies continued to report difficulties in managing elevated payroll costs, which have been exacerbated by the recent Budget's increase in National Insurance contributions.

Rising labor expenses, in turn, drove the first acceleration in prices charged by businesses since April, highlighting persistent cost pressures despite easing demand conditions.

Looking ahead, however, sentiment remained broadly optimistic. Most firms surveyed expressed confidence in a pickup in future business activity, citing expectations of improved domestic demand, potential easing in global trade tensions, and hopes that fiscal or monetary policy could provide further support later in the year. Nevertheless, the mixed data suggest the UK economy is treading a fine line between modest expansion and renewed stagnation, leaving policymakers with a delicate balancing act in the months ahead.