Key findings:
- Robust upturn in mid-market business activity, although new order growth softened
- SME business activity fell only slightly, and to lesser extent than at the end of 2025
- Middle East conflict contributes to softer output growth projections amongst UK businesses for the year ahead
- Input price inflation jumped to its highest since January 2023 amid escalating fuel costs
A sustained expansion of UK private sector output in the first quarter of 2026 was supported by a solid growth performance among mid-market businesses, according to the latest survey data from the NatWest UK Business Growth Tracker. However, confidence towards the future eased in March as the Middle East conflict and sharply rising input prices, which together weighed on business optimism.
NatWest’s Tracker – which is based on the Purchasing Managers’ Index™ and surveyed mid-market businesses operating in the manufacturing and services sectors – posted 53.0 in March, which extended the current period of growth to just over five years. Any reading above 50.0 signals growth, and the further above the 50.0 threshold the faster the rate of growth signalled. The index was down from 54.8 in February but remained well above the equivalent reading for the UK as a whole in March (50.3).
The Tracker revealed that the upturn in mid-market activity was led by the service sector (index: 54.2) in March. In contrast, production volumes softened in the manufacturing sector (index: 46.5). Service providers commented on resilient demand conditions, successful long-term business expansion strategies and, in some cases, the impact of new technology investments. Manufacturers reported challenges from rising price pressures, softer export sales, and supply chain disruptions.
UK small and medium-sized enterprises (SMEs) recorded a marginal downturn in business activity in the first quarter of 2026, but the reduction in output was less marked than seen at the end of 2025. Job losses were also modest and eased in comparison to those seen in the final quarter of last year.
March data highlighted softer demand patterns for both SMEs and the mid-market segment, especially across export markets. In February, UK businesses had been more upbeat about their overseas growth prospects, with 36% of respondents expecting stronger export sales and only 13% forecasting a reduction. By March, firms widely reported that recent geopolitical developments had weighed on business and consumer confidence, contributing to weaker export demand across both manufacturing and services.
Escalating fuel and transportation costs, alongside sharply rising oil prices, drove a renewed increase in cost pressures in March. Overall, input price inflation was the highest since January 2023 at both SMEs and mid-market businesses. Manufacturers also recorded the greatest lengthening of suppliers’ delivery times for nearly four years amid widespread international shipping delays.
There remains concern about the impact of rising geopolitical tensions and higher inflation which contributed to a fall in business optimism in March. While UK businesses continue to anticipate growth over the year ahead, confidence fell to an eight-month low among mid-market firms and to its lowest level since April 2025 for SMEs.
Sebastian Burnside, NatWest’s Chief Economist, said: “UK businesses have continued to show resilience against the backdrop of a more challenging operating environment. Cost pressures have risen sharply again, especially for fuel and transport expenses, meaning input price inflation is at its highest level in over three years. Nonetheless it is encouraging to see firms are still planning for growth over the year ahead, especially with an eye on longer‑term investment and adaptation.”
Andy Gray, Managing Director of Commercial Mid-Market at NatWest, said: “Despite increased uncertainty and cost pressures, many mid‑market businesses are continuing to adapt and invest where it makes strategic sense. The latest data show firms balancing short‑term caution with longer‑term growth ambitions, particularly in areas such as technology and efficiency. Supporting customers to manage risk, maintain momentum and plan with confidence remains a priority as businesses navigate a more volatile operating environment.”
A sustained expansion of UK private sector output in the first quarter of 2026 was supported by a solid growth performance among mid-market businesses, according to the latest survey data from the NatWest UK Business Growth Tracker. However, confidence towards the future eased in March as the Middle East conflict and sharply rising input prices, which together weighed on business optimism.
NatWest’s Tracker – which is based on the Purchasing Managers’ Index™ and surveyed mid-market businesses operating in the manufacturing and services sectors – posted 53.0 in March, which extended the current period of growth to just over five years. Any reading above 50.0 signals growth, and the further above the 50.0 threshold the faster the rate of growth signalled. The index was down from 54.8 in February but remained well above the equivalent reading for the UK as a whole in March (50.3).
The Tracker revealed that the upturn in mid-market activity was led by the service sector (index: 54.2) in March. In contrast, production volumes softened in the manufacturing sector (index: 46.5). Service providers commented on resilient demand conditions, successful long-term business expansion strategies and, in some cases, the impact of new technology investments. Manufacturers reported challenges from rising price pressures, softer export sales, and supply chain disruptions.
UK small and medium-sized enterprises (SMEs) recorded a marginal downturn in business activity in the first quarter of 2026, but the reduction in output was less marked than seen at the end of 2025. Job losses were also modest and eased in comparison to those seen in the final quarter of last year.
March data highlighted softer demand patterns for both SMEs and the mid-market segment, especially across export markets. In February, UK businesses had been more upbeat about their overseas growth prospects, with 36% of respondents expecting stronger export sales and only 13% forecasting a reduction. By March, firms widely reported that recent geopolitical developments had weighed on business and consumer confidence, contributing to weaker export demand across both manufacturing and services.
Escalating fuel and transportation costs, alongside sharply rising oil prices, drove a renewed increase in cost pressures in March. Overall, input price inflation was the highest since January 2023 at both SMEs and mid-market businesses. Manufacturers also recorded the greatest lengthening of suppliers’ delivery times for nearly four years amid widespread international shipping delays.
There remains concern about the impact of rising geopolitical tensions and higher inflation which contributed to a fall in business optimism in March. While UK businesses continue to anticipate growth over the year ahead, confidence fell to an eight-month low among mid-market firms and to its lowest level since April 2025 for SMEs.
Sebastian Burnside, NatWest’s Chief Economist, said: “UK businesses have continued to show resilience against the backdrop of a more challenging operating environment. Cost pressures have risen sharply again, especially for fuel and transport expenses, meaning input price inflation is at its highest level in over three years. Nonetheless it is encouraging to see firms are still planning for growth over the year ahead, especially with an eye on longer‑term investment and adaptation.”
Andy Gray, Managing Director of Commercial Mid-Market at NatWest, said: “Despite increased uncertainty and cost pressures, many mid‑market businesses are continuing to adapt and invest where it makes strategic sense. The latest data show firms balancing short‑term caution with longer‑term growth ambitions, particularly in areas such as technology and efficiency. Supporting customers to manage risk, maintain momentum and plan with confidence remains a priority as businesses navigate a more volatile operating environment.”
