UK Companies Show Continued Growth as Household Confidence Strengthens
UK companies maintained their early-2026 improvement in February, while households entered the year with stronger confidence, recent survey data shows. Despite this momentum, many firms are still reducing staff numbers.
The S&P Global UK Composite Purchasing Managers’ Index rose slightly to 53.9 in February from 53.7 in January. This marks the strongest reading since April 2024. Any PMI figure above 50 signals expansion in economic activity.
Consumer demand and retail sales improve
Separate official figures revealed that retail sales volumes in January recorded their fastest annual increase in nearly four years. Growth was partly driven by niche segments such as commercial art dealers and online jewellery retailers, which appear to be benefiting from higher gold prices.
Growth outlook for early 2026
Economists say the February PMI supports expectations that UK economic growth will pick up in the first quarter. Estimates suggest GDP could expand around 0.3 percent, improving from just 0.1 percent growth in the final quarter of 2025. Analysts link the stronger outlook to easing uncertainty after the government’s November budget.
Fiscal position and policy expectations
Public finance data also showed a record budget surplus in January, giving the government more room to maintain a cautious fiscal update in March. However, the longer-term outlook remains challenging.
With the Bank of England projecting only modest annual growth, most economists expect interest rate cuts to begin in the coming months, possibly followed by another reduction later in 2026.
Inflation pressures remain uneven
Businesses reported that selling prices rose at the fastest pace since last spring. At the same time, cost pressures increased more slowly than in recent months. Economists note that inflation has eased but remains persistent enough to keep policymakers divided on the pace of rate cuts.
Job cuts continue despite recovery signs
Employment levels declined most sharply in the services sector. Employers face higher social security contributions introduced in 2025, which has encouraged some firms to invest in technology instead of hiring new staff.
The services PMI dipped slightly to 53.9, while manufacturing reached an 18-month high of 52.0. Overall new orders rose at the fastest pace since September 2024, with export demand for UK manufacturers showing its strongest growth in more than four years.
