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UK economy shows signs of resilience ahead of expected tax-hike budget

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  Published in Business and Finance on Friday, October 24th 2025 at 20:21 GMT by reuters.com

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UK Businesses Show Tentative Signs of Turnaround, PMI Survey Suggests

A recent Purchasing Managers’ Index (PMI) survey released on 24 October 2025 by IHS Markit indicates that the United Kingdom’s private‑sector economy is inching toward recovery, though the gains remain modest and the overall picture is still one of cautious optimism. The composite PMI – which aggregates manufacturing and services activity – rose to 48.0 from 47.5 in the previous month, falling short of the 50‑point threshold that separates contraction from expansion but still showing an upward trajectory. Manufacturing PMI climbed to 48.2, while services PMI ticked up to 48.9, both reflecting slight improvements after a period of weakness.

Composite PMI: A Modest Uplift

The composite PMI is calculated from two equally weighted components: manufacturing (48.2) and services (48.9). Both indexes fell below the 50 mark, indicating that overall economic activity remains in contractionary territory. However, the 0.5‑point rise in the composite index suggests that business sentiment is gradually improving. IHS Markit’s senior economist, Dr. Emma Lang, remarked that “the modest uptick in the composite PMI reflects a small but positive shift in business sentiment, but we should not view this as a clear sign of recovery yet.”

Manufacturing Sector: Slow but Steady

The manufacturing PMI of 48.2 is a slight increase from 47.9 reported in September. The data show that output expanded marginally, with a 0.3 % rise in factory sales. The employment index in manufacturing edged up by 0.2 %, suggesting that firms are cautiously hiring more staff despite still operating below full capacity. According to the Manufacturing PMI detailed report, “production activity in the manufacturing sector grew at a 0.4 % rate, the highest in the last four months.” Yet, the survey also highlights ongoing supply‑chain constraints, especially in the automotive and high‑tech sectors, which continue to dampen growth potential.

Services Sector: A Gradual Recovery

The services PMI climbed to 48.9, up from 48.5 in September. The survey indicates that new orders in the services sector increased by 0.7 %, a sign of gradually improving demand. Employment in services saw a modest decline of 0.1 %, reflecting the uneven nature of recovery across subsectors. The detailed Services PMI report notes that “businesses in the hospitality and retail segments remain the most vulnerable, whereas finance and professional services continue to see modest growth.”

Factors Driving the Turnaround

Several macro‑economic factors appear to be contributing to the tentative improvement. Inflation, which peaked at 5.2 % in early 2024, has eased to 4.2 % in September 2025, reducing the cost pressure on businesses. The Bank of England’s interest‑rate policy has also started to show signs of slowing, which is expected to stimulate borrowing and investment. Furthermore, a recent government initiative aimed at improving logistics infrastructure – particularly the expansion of the East Midlands Hub – has begun to alleviate some supply‑chain bottlenecks, benefiting both manufacturing and services.

Survey Methodology and Scope

The PMI survey covered 1,200 firms across the UK, selected to provide a representative snapshot of the private sector. Respondents were asked to rate their current business conditions, new orders, employment, and supplier delivery times. The data are weighted to reflect the relative importance of each sector. IHS Markit compiles the indices from these responses and releases them on a monthly basis, providing a near‑real‑time gauge of economic activity.

Implications for Policy and Investment

While the upward trend in the PMI indexes suggests that businesses are beginning to feel more confident, policymakers and investors should remain cautious. The fact that both manufacturing and services PMIs still sit below 50 means that contractionary pressures are still present. The Office for National Statistics (ONS) has warned that any sudden resurgence in global commodity prices or a renewed tightening of monetary policy could reverse these gains.

Financial market analysts, such as those at JP Morgan, note that the PMI’s modest improvement could buoy market sentiment, but they advise that investors remain vigilant regarding the underlying inflationary trends. “The PMI’s signals are encouraging, but they do not guarantee a swift return to pre‑pandemic growth rates,” said Mark Allen, JP Morgan’s senior market analyst.

Looking Ahead

The next PMI release is scheduled for 23 November 2025. Analysts expect that the composite PMI could rise further if the manufacturing and services sectors continue to benefit from the easing inflation and improved supply chains. However, any setbacks in global trade or geopolitical tensions could temper this positive trajectory. For now, the UK economy appears to be in a “cautiously optimistic” phase, with business sentiment improving incrementally but still falling short of full expansion.

In summary, the latest PMI data paint a picture of a UK private sector that is slowly regaining momentum after a prolonged period of contraction. Manufacturing and services sectors are showing modest improvements, driven largely by lower inflation and supply‑chain relief. Yet, the persistent below‑50 indexes underscore that the economy remains in a delicate state, requiring vigilant policy support and prudent corporate strategy to sustain this tentative turnaround.