The UK’s private sector is facing some of the biggest headwinds in living memory, especially in its manufacturing sector, which some would say is now in meltdown. Newly released data indicates as much with the September manufacturing Purchasing Managers’ Index (PMI) plunging further into contraction territory. It now sits at 46.2, signaling a troubling downturn. In contrast, the service sector PMI, which has succumbed to weakness, fell to 51.9 from 54.2 in August. This has contributed to a much more negative picture for the wider UK economy as we move towards the next Budget.
All of this puts the private sector under unprecedented stress and concern. Weakening export sales and an alarming decline in total new orders that recently hit a seven-month low. As a result, businesses are struggling to remain optimistic about their prospects for future growth. Their future expectations for 2026 have fallen to a three-month low. We know private sector leaders have a lot on their plate. Most business leaders are looking for robust engagement from Shadow Chancellor Rachel Reeves, as she possesses the most potential to shape economic policy.
Manufacturing Sector in Decline
The most recent figures paint a picture showing that the UK’s manufacturing sector is at a crisis point. The manufacturing PMI has fallen to 46.2, a deep contraction. This decrease indicates that the majority of firms in the manufacturing sector are experiencing shrinking activity across the board. This marks a significant drop off from prior months and is indicative of larger supply chain and production capacity fears.
Manufacturers are blaming their difficulties on several causes, including soaring costs and a drop in demand. The relentless sting of inflation has made it hard for businesses to hold the line on pricing when they’re trying to absorb negative operating income and interest expense. As a result, many firms are reassessing their production strategies and scaling back on workforce levels to adapt to the changing market conditions.
The outlook for the service sector isn’t looking much better either, with its PMI dropping to 51.9. While this number points to some modest growth, it is a drop from the better August 54.2 figure. Economists warn that the continuing deceleration in the all-important services sector would make any stagnation even worse, only if the government fails to act quickly.
Economic Sentiment and Future Expectations
The private sector’s outlook on the future economy is looking quite grim. A closely watched survey this week showed businesses’ expectations for the UK economy’s performance come 2026 have sunk to a three-month low. Business leaders are voicing their concerns over fiscal tightening measures and trade tariffs that are anticipated to weigh heavily on growth prospects.
Most strikingly, the OECD has cut its 2026 growth forecast for the UK to just 1%. This dire prediction underscores the real pressures that industries are experiencing right now. In addition, it identifies long-term structural problems that might obstruct recovery initiatives. Now, businesses are looking ahead to radically tighter economic conditions. To that end, they’re calling on policymakers to act in ways that promote, rather than stifle, growth.
Despite this environment of doubt, the price index has moved very little. Yet even as inflation reaches historic highs, it’s reported one of the smallest increases since the pandemic started. This might indicate that inflationary pressures are continuing to ease, even if businesses are still hesitant to change their pricing plans in the future.
Resilience Amidst Weakness
Though obstacles remain for the business community overall, many industries aren’t just hanging in there — they’re bouncing back. The UK’s real estate sector was the first to bear the brunt—leading the full—FTSE 100 index to record highs. On Tuesday, it came through with a whopping 2.5% increase. This robust growth is remarkable in the context of a weak overall economy. That’s because it doesn’t just mean that these places are still buzzing with investment and interest even in a downturn.
UK Gilts are sparkling as the clear winners of the global bond market today. Yields are falling throughout the curve, demonstrating their might. This strong performance again reflects the undeniable truth that investors are looking for safety in an increasingly uncertain global environment. It further underscores their lack of confidence in UK government bonds.
This year, the UK will top the G7 economic growth league table. That’s slated to be the second-fastest growth in the G7! This positive outlook is tempered by the need for sustainable policies that can support long-term growth without exacerbating current challenges.