The UK private sector continued to expand in September, but economic growth lost momentum while inflationary pressures intensified, according to the latest S&P Global Flash UK PMI survey.
The Flash UK Composite Output Index fell to 51.7 in September from 52.5 in August, marking the third consecutive month of expansion but the weakest pace of growth since June.
The latest figures point to a difficult combination for the UK economy: slower business activity, weaker demand and employment, alongside rising input costs and stronger price pressures.
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UK Private Sector Growth Slows
The Composite PMI remained above the 50.0 threshold that separates expansion from contraction, but the decline from August indicates that the pace of economic activity has moderated.
| Indicator | September 2026 | August 2026 | Signal |
|---|---|---|---|
| Composite Output PMI | 51.7 | 52.5 | Slower growth |
| Services Business Activity | 51.7 | 52.5 | Slower growth |
| Manufacturing Output | 51.4 | 52.1 | Slower growth |
| Manufacturing PMI | 52.0 | 51.7 | Higher |
The slowdown was visible across both major parts of the private sector. Service providers reported subdued domestic conditions and continued geopolitical uncertainty, while manufacturers pointed to weak consumer demand as a constraint.
At the same time, investment in artificial intelligence and higher defence spending provided some support for manufacturing activity.
For investors following [UK macroeconomic news], the latest PMI figures are important because they provide an early indication of changes in business activity before official economic data are released.
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Inflationary Pressures Intensify
The most notable concern in the September survey was the renewed acceleration in business costs.
Input price inflation increased for the second consecutive month, reaching its highest level since June. Companies reported higher costs for energy, fuel and raw materials, with copper and steel also mentioned among the sources of pressure.
Higher operating costs were increasingly reflected in prices charged by companies. The overall rate of price inflation accelerated to its strongest level since June.
This creates a difficult environment for policymakers because inflation is becoming more persistent at a time when economic growth is losing momentum.
Services Sector Loses Momentum
The services sector remained in expansion territory, but its pace of growth weakened significantly.
The Services Business Activity Index dropped to 51.7 from 52.5, with companies citing weak domestic economic conditions and geopolitical uncertainty.
New business across the private sector also declined marginally in September after registering small increases in July and August. The deterioration was primarily driven by another decline in new business at service companies.
Businesses frequently linked weaker demand to reduced confidence and pressure on discretionary spending.
Manufacturing Shows Mixed Signals
Manufacturing delivered a more mixed picture.
The headline Manufacturing PMI increased to 52.0 from 51.7, reaching a three-month high. However, the Manufacturing Output Index fell to 51.4, its lowest level in six months.
Manufacturing employment increased for the sixth consecutive month, while the sector also recorded its fastest increase in outstanding work since January 2022.
Companies pointed to planned projects, investment in production capacity and stronger defence-related spending as reasons for optimism.
UK Employment Remains Under Pressure
Employment across the private sector declined again in September, extending the current period of job losses to two years.
The latest decline was marginal and considerably weaker than the average reduction recorded during the first half of 2026.
Companies cited higher operating costs, efficiency improvements and a lack of pressure on business capacity as reasons for limited hiring.
The manufacturing sector was an exception, with employment increasing for a sixth consecutive month.
What the PMI Means for the Bank of England
The latest data present a difficult policy environment for the [Bank of England and monetary policy].
On one side, weaker growth, declining employment and softer new business suggest that the economy remains fragile. On the other, accelerating input costs and stronger prices charged by businesses indicate that inflationary pressures have not disappeared.
S&P Global Chief Business Economist Chris Williamson said the combination of weak growth and rising inflation was concerning, noting that the survey pointed to economic growth consistent with only around 0.1% quarterly GDP growth.
The data therefore reinforce the tension facing policymakers: higher borrowing costs could help contain inflation expectations, but they could also put additional pressure on an already weak economy.
Market Impact: GBP, Bonds and Interest Rates
The September PMI creates a mixed signal for financial markets.
The slowdown in UK growth is generally negative for the pound because weaker economic activity can reduce expectations for tighter monetary policy. However, the renewed acceleration in input and selling-price inflation could keep the Bank of England cautious about easing policy.
For GBP/USD, the key market driver is therefore likely to be the balance between weaker growth and stronger inflation. If markets focus more heavily on the inflation component, UK rate expectations and gilt yields could remain elevated, potentially supporting the pound. If concerns about economic weakness dominate, the opposite pressure could emerge.
The same tension is relevant for UK government bonds: persistent inflation can support higher yield expectations, while weaker growth can increase demand for expectations of eventual monetary easing.
The PMI therefore does not provide a one-directional signal for markets. Instead, it highlights a potentially challenging growth-versus-inflation trade-off for the Bank of England.
Key Takeaway
The September UK Flash PMI shows an economy that is still expanding but losing momentum, while inflationary pressures are moving higher again. For markets, the key issue is whether the renewed rise in business costs becomes persistent enough to keep the Bank of England cautious, despite weak growth and continued pressure on employment.
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