UK business activity slows to three-month low amid Iran war inflation pressure

Growth across Britain’s private sector has slowed to a three-month low in September amid a “worrying combination” of sluggish expansion and rising inflation in the wider economy, according to a report.

New early figures show that while activity in the private sector expanded for the third month in a row, the pace of growth slowed to the weakest since June.

The closely watched S&P Global flash UK composite purchasing managers’ index (PMI) – which is based on preliminary data from the manufacturing and services sectors – recorded a reading of 51.7 for the month, down from 52.5 in August.

Any score above 50.0 indicates activity is growing while any score below means it is contracting.

Meanwhile, the rate of input price inflation rose for the second month in a row to reach its highest since June as soaring energy and fuel prices caused by the Iran war take their toll.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “September is seeing a worrying combination of disappointingly sluggish economic growth and intensifying inflationary pressures, with subdued business confidence and high costs meanwhile continuing to discourage hiring.”

He said the flash PMI survey data suggested growth in the wider economy was running at “a mere” 0.1% quarterly rate.

“Growth, business confidence and employment are all being hamstrung by high energy prices, elevated business costs, geopolitical worries, higher market borrowing costs and uncertainty over Government policy at home in the run-up to the autumn Budget,” he said.

The report showed activity slowed across both the UK’s services and manufacturing sectors.

Services firms flagged “subdued domestic economic conditions and ongoing geopolitical uncertainty” as factors constraining growth, although technology was a bright spot.

Manufacturing saw the weakest pace of growth since April, the report showed, with weak consumer demand reported as a headwind, though AI investment and defence spending were highlighted as factors supporting production.

Both sectors experienced rising inflation, with fuel prices the biggest rising input cost pressure, as well as energy, labour and raw materials.

This led firms to ramp up price hikes in response, according to the report.

Mr Williamson said this leaves the Bank of England with a dilemma as it looks to control rising inflation while not choking off sluggish growth.

“While the upturn in the survey’s price gauges suggest the Bank of England looks likely to keep a hawkish bias, the worryingly lacklustre pace of business growth underscores the risk to the economy from higher borrowing costs,” he said.

The report also showed employment numbers fell this month, marking two straight years of job losses, though the latest decline was driven solely by the service sector and was “marginal and notably softer than seen on average in the first half of 2026”.

In the manufacturing sector, employment levels increased for the sixth month in a row, helped by the fastest rise in backlogs of work since January 2022.

Chris Cheverall, head of UK at CMC Markets, said the PMI report made for “uncomfortable” reading.

He said: “Businesses are being squeezed from both directions: growth is slowing while costs are still rising.

“There are still pockets of resilience, as manufacturing appears to be recovering more strongly than services, which suggests the economy is not weakening uniformly and gives some support to the idea that activity can continue to stabilise.”