Key findings:
- Manufacturing SMEs record a rise in output for first time since October 2025
- Growth expectations at UK businesses improve in June
- Input cost inflation eases to a three-month low
- Mid-market segment saw a slight easing in momentum, despite robust manufacturing performance
- SME service providers signal softer falls in business activity and new work
UK manufacturers returned to growth in June, while business confidence strengthened and input cost inflation eased from recent highs, according to the latest survey data from the NatWest UK Business Growth Tracker.
The broader picture remained mixed, however, with weaker service sector activity weighing on overall business performance across both the SME and mid-market segments. Encouragingly, UK businesses reported stronger expectations for output growth over the year ahead, supported by a sustained easing in input cost inflation from the peak seen at the start of the Middle East conflict.
NatWest's Tracker – which is based on the Purchasing Managers' Index™ and surveys mid-market businesses operating in the manufacturing and services sectors – posted 49.3 in June, down from 51.2 in May. This was below the 50.0 no-change mark for the first time since September 2025, signalling a modest easing in momentum following moderate growth in April and May.
Mid-market service providers experienced a renewed fall in activity levels. At 48.5 in June, the respective index was the lowest since January 2021, although still indicative of only a modest rate of decline.
By contrast, manufacturers in the mid-market segment recorded a robust performance (index: 53.7), with output growth reaching its fastest pace since May 2022.
SME conditions remain challenging, but rates of decline ease
Business activity (index: 47.8) and new orders fell across UK SMEs at the end of the second quarter, with firms often citing market uncertainty and rising costs as headwinds. However, in both cases the rates of decline eased from May, and the gap between SMEs and mid-market businesses was among the smallest seen for more than three years.
There were also further signs that cost pressures were easing, with both SMEs and mid-market companies recording the softest rates of input price inflation since March. Nevertheless, costs remained elevated by historical standards, reflecting higher prices for raw materials, energy and transportation.
Confidence improves and export expectations remain upbeat
UK businesses continued to project output growth over the coming 12 months, with confidence levels across both SMEs and mid-market firms improving from May. While optimism remained below long-run averages, easing cost pressures helped support a more positive outlook.
Exporters also remained upbeat about prospects for international trade. Around 37% of businesses expect export sales to increase over the next year, compared with 15% anticipating a decline. Firms reported plans to expand into overseas markets, particularly in Europe and the US, with AI investment, product innovation and hopes of reduced trade frictions frequently cited as opportunities for growth.
Sebastian Burnside, NatWest’s Chief Economist, said: “Manufacturing businesses have faced a lot of headwinds in recent years, from supply chain uncertainty and changing tariffs to the latest energy shock, so the growth they’ve reported in June is both encouraging and desperately needed. Businesses across all sectors have been grappling with higher costs this year. If the modest fall in pricing pressure shown last month can continue, then it could help growth momentum to build in the second half of the year.”
Andy Gray, Managing Director of Commercial Mid-Market at NatWest said: “While momentum eased slightly in June, the mid-market continues to show resilience. Manufacturing output returned to growth, confidence improved and cost pressures moderated. The Mid-Market Growth Council continues to highlight the significant contribution these businesses make to the UK economy and the opportunity to unlock further growth through the right support, investment and policy environment.”
For further detail and supporting insight see Notes to Editors.
