UK Business Activity Loses Momentum as Cost Pressures Intensify
The UK composite PMI dropped to 51.7 in September, indicating slower private-sector growth, while input-cost inflation reached its highest level since June. Brent crude exceeded $105 a barrel, adding to cost pressures, and consumer confidence fell sharply to -34. The OECD raised its 2026 UK growth forecast to 1.1% but trimmed 2027 to 1%.
September’s PMI reading marks the weakest private-sector expansion in three months, with services and manufacturing both decelerating. Input-cost inflation accelerated for a second straight month, driven by energy, fuel, and raw materials, while Brent crude climbed above $105. The OECD’s revised 2026 forecast of 1.1% growth reflects stronger domestic demand, yet its 2027 cut to 1% acknowledges persistent energy-driven headwinds. Bank of England Deputy Governor Clare Lombardelli signaled that sustained high energy prices could justify further rate hikes unless activity weakens markedly. Meanwhile, consumer confidence plunged to -34, and global borrowing costs remain elevated, with the US 10-year Treasury near 5.14%. These factors collectively strain working capital and heighten the risk of slower customer payments.
This combination of slowing growth and rising costs could squeeze small and mid-sized businesses most acutely, as they often lack the buffers to absorb higher energy and material expenses. Tighter cashflow may lead to delayed invoice settlements, potentially cascading through supply chains. Consumers, facing weaker confidence and higher prices, could reduce discretionary spending, further pressuring retailers and service providers. If the Bank of England responds to persistent energy inflation with another rate rise, borrowing costs for leveraged firms would climb, possibly triggering more insolvencies. The overall effect may be a more cautious business environment, where credit management and liquidity planning become critical for survival.