UK private sector growth accelerates as optimism rises after budget
Newsflash: UK business growth is accelerating this month, thanks to a rise in new businesses, as the uncertainty created in the build-up to November’s budget fades.
The latest poll of UK purchasing managers shows that business activity growth across the UK private sector economy regained momentum, supported by the strongest upturn in new work since October 2024.
Data firm S&P Global reports that business activity accelerated in both the manufacturing and service sectors
This lifted its global flash UK PMI composite output index up to 52.1 in December, from 51.2 in November, which it says shows “a moderate increase in output levels”.
The PMI report also shows “a modest recovery in business activity expectations for the year ahead”, with business optimism was the second-highest since October 2024.
Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:
“December’s flash PMI surveys brought welcome news on faster economic growth at the end of the year, with businesses buoyed in part by the post-Budget lifting of uncertainty. The PMI is consistent with GDP growth accelerating to 0.2% in December, albeit with a more modest 0.1% gain signalled for the fourth quarter as a whole.
It’s a big relief that business confidence has not slumped in a repeat of last year’s post-Budget gloom. Instead, companies have ended the year on a slightly more optimistic note amid signs of improving demand now that some of the uncertainty created by the Budget has cleared. New orders are in fact growing at the fastest rate for over a year.
However, the overall pace of output and demand growth remains lacklustre, and the expansion is still very dependent on technology and financial services activity, with many other parts of the economy struggling to grow or in decline
However… today’s PMI report shows that firms continued to cut staffing numbers – employment decreased for the fifteenth successive month.
Williamson says firms are worried about rising staff costs:
Job losses are also again worryingly widespread, and it remains to be seen whether the uptick in orders during December will persuade more companies to start hiring again, especially as rising staff costs continue to be reported as one of the key concerns of businesses.
These higher cost pressures were in turn cited as the key cause of a renewed upturn in selling price inflation across both goods and services
Key events
The pound has touched a two-month high against the US dollar today, as the greenback weakens generally.
Sterling traded as high as $1.3439, its highest level since 20 October.
The dollar has also slipped to a two-month low against the euro, as traders position themselves ahead of the US jobs report in 12 minutes time….
London’s luxury property market is set for its worst year since 2020, Bloomberg reports.
This follows a series of tax measures damped sentiment among wealthy and discretionary buyers, and makes 2025 the second year since 2011 in which no sales above £50 million ($66.8 million) were recorded, according to data from property company LonRes.
Bloomberg adds:
While 2024 saw at least four £50 million-plus deals — including one mansion bought for £139 million — the biggest transactions this year were around the £40 million mark. And data from broker Savills Plc show residential sales above £5 million in the first three quarters of 2025 tumbled 18% from the same period a year earlier, putting them on course to be the fewest since the Covid-19 pandemic locked down London.
The clarity created by November’s budget helped to lift the UK economy in December, says Matt Swannell, chief economic advisor to the EY ITEM Club:
He writes:
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The UK flash composite Purchasing Managers’ Index (PMI) rebounded in December. Swings in corporate sentiment rather than genuine changes in private sector activity can often drive the survey’s outturns, so reduced domestic uncertainty after the Budget is likely to have played a major role in today’s data. Moreover, the outlook for the private sector in 2026 remains relatively weak.
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The Monetary Policy Committee (MPC) is likely to cut rates later this week, even if the vote is a closer call than markets expect. With today’s survey suggesting that private sector momentum remains modest and businesses are reflecting higher input costs in prices, the MPC will likely remain deeply divided as we move into next year.
BBC Green Paper considers advertising and subscription options
Mark Sweney
BBC viewers could have to subscribe to a Netflix-style service to watch hit shows such as Traitors and Strictly Come Dancing, and start seeing advertising for the first time, under ambitious options unveiled by ministers to enable the corporation to grow commercial revenues.
The culture secretary, Lisa Nandy, unveiled the potential proposals in the government’s green paper consultation formally launching the process to renew the BBC’s charter for ten years from 2028.
The initial consultation, which will run for 12 weeks before a white paper is published, aims to put the BBC “on a sustainable financial footing”.
“We think there is scope for the BBC to further increase its commercial revenue,” the government said in the green paper. “We are considering a range of options with increasing ambition.”
The paper outlines potential options from targeted advertisements on bbc.co.uk to “full advertising across all BBC platforms”.
Ministers have also raised the prospect of introducing a Netflix-style “targeted top-up subscription service” which could be introduced for access to “historic BBC content”, or be rolled out more expansively to put “commercial programmes behind a paywall”.
The government said:
“Content that remained universally available could include genres such as news, current affairs, factual, and children’s TV.”
However, the government admitted that there would be challenges determining which genres should continue to be offered outside a paywall, such as British dramas like Waterloo Road or major sporting events involving the home nations.
The government said that if it were to allow advertising to run across all BBC services, or introduce a broad subscription service, there would be a reduction in the licence fee.
“These options could further supplement BBC public funding to facilitate greater investment in content and/or enable the cost of the licence fee for households to be managed,” the government said.
The BBC’s income totalled £5.9bn last year but funding has fallen nearly 40% in real-terms since 2010, due to factors including several years of freezes or below inflation licence fee funding settlements, and being forced to take on costs for running the World Service.
A further 300,000 households stopped paying the licence fee last year – which along with payment evasion meant the corporation lost out on £1bn – and by the end of the decade the BBC will lose more than 1 million more paying households, according to the Office for Budget Responsibility (OBR).
“Audiences now have much greater choice in what media they consume, and how and when they do so,” the government said, adding:
“In this environment, where they are now accustomed to accessing advertising or subscription-funded content everywhere, there is a sense among some audiences that the licence fee has become outdated.”
The government said that it will look at options to reform the £174.50 licence fee to “improve its sustainability”.
It is not clear what price a subscription service would be set at, Netflix’s cheapest package, which includes advertising, costs £5.99 a month.
This morning’s rebound in the UK PMI survey suggests the economy is enjoying a post-budget bounce, says Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK.
But there is still a danger that the economy shrinks in the current quarter, he warns.
Pugh explains:
“The rise in the Flash Composite PMI to 52.1 in December from 51.2 in November suggests that the economy recovered a little in December after the budget turned out to be more benign than expected. That won’t be enough to prevent the MPC from cutting interest rates on Thursday. However, a rise in both input and output prices will make the hawks on the committee nervous.
“Both the services and manufacturing PMIs rose in December. The rise in the manufacturing PMI probably continues to reflect the phased restart of Jaguar Land Rover production as new order levels remained similar to November. The rebound in the services PMI is a good sign that activity recovered in December as pre-budget uncertainty dissipated. Indeed, the new orders index recovered almost all of the ground lost in November. That gives us some hope that the economy will finish the year on a stronger note after what is likely to be a weak October and November. However, we still think GDP in Q4 will flatline at best and there is a decent chance of a contraction.
“Meanwhile, the jump in input and output prices is bad news for the Bank of England. While that won’t be enough to prevent a rate cut later this week, it will raise concerns that a rebound in activity will be accompanied by stickier inflation.
UK private sector growth accelerates as optimism rises after budget
Newsflash: UK business growth is accelerating this month, thanks to a rise in new businesses, as the uncertainty created in the build-up to November’s budget fades.
The latest poll of UK purchasing managers shows that business activity growth across the UK private sector economy regained momentum, supported by the strongest upturn in new work since October 2024.
Data firm S&P Global reports that business activity accelerated in both the manufacturing and service sectors
This lifted its global flash UK PMI composite output index up to 52.1 in December, from 51.2 in November, which it says shows “a moderate increase in output levels”.
The PMI report also shows “a modest recovery in business activity expectations for the year ahead”, with business optimism was the second-highest since October 2024.
Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:
“December’s flash PMI surveys brought welcome news on faster economic growth at the end of the year, with businesses buoyed in part by the post-Budget lifting of uncertainty. The PMI is consistent with GDP growth accelerating to 0.2% in December, albeit with a more modest 0.1% gain signalled for the fourth quarter as a whole.
It’s a big relief that business confidence has not slumped in a repeat of last year’s post-Budget gloom. Instead, companies have ended the year on a slightly more optimistic note amid signs of improving demand now that some of the uncertainty created by the Budget has cleared. New orders are in fact growing at the fastest rate for over a year.
However, the overall pace of output and demand growth remains lacklustre, and the expansion is still very dependent on technology and financial services activity, with many other parts of the economy struggling to grow or in decline
However… today’s PMI report shows that firms continued to cut staffing numbers – employment decreased for the fifteenth successive month.
Williamson says firms are worried about rising staff costs:
Job losses are also again worryingly widespread, and it remains to be seen whether the uptick in orders during December will persuade more companies to start hiring again, especially as rising staff costs continue to be reported as one of the key concerns of businesses.
These higher cost pressures were in turn cited as the key cause of a renewed upturn in selling price inflation across both goods and services
Over in the eurozone, private sector growth has hit a three-month low.
Data provider S&P Global reports that its flash eurozone composite PMI output index has dropped to 51.9, down from November’s 52.8.
More happily, any reading over 50 shows growth, and December’s data shows that Eurozone business activity has completed a full calendar year of growth for the first time since the Covid-19 pandemic.
Oil hits seven-month low below $60 on Ukraine peace deal hopes
In the markets, hopes of a Ukraine peace deal have pushed the oil price down to its lowest level in seven months.
The price of a barrel of Brent crude has dropped by 1% to $59.90, its lowest since early May.
The drop comes after European leaders said they were ready to lead a “multinational force” in Ukraine as part of a US proposal for a peace agreement between Russia and Ukraine
In a statement, the leaders of the UK, France, Germany and eight other European countries said troops from a “coalition of the willing” with US support could “assist in the regeneration of Ukraine’s forces, in securing Ukraine’s skies, and in supporting safer seas, including through operating inside Ukraine”.
The proposal was part of a new package of security guarantees, backed by the White House, that could mark a breakthrough in reaching a peace deal between Moscow and Kyiv, US and European leaders have said.
But, significant differences remained over the future status of the Ukrainian territories occupied by Russia.
The prospect of a peace deal has pushed down shares in defence companies this morning; BAE Systems (-2.2%) are the top faller on the FTSE 100 share index.
Young people are being badly affected by the weaking jobs market, points out Stephen Evans, chief executive at Learning and Work Institute (L&W):
“Further worrying signs in the labour market with further falls in payroll jobs. Young people, with over one million not in work or full-time education, are among those most affected, and retail and hospitality have shed 129k payroll jobs in a year.
The rise in unemployment to its highest since the pandemic partly reflects a fall in economic inactivity. While this suggests more people are looking for work, it also indicates some are struggling to find work. We need a twin approach of providing more help to find work and creating the conditions for employers to create jobs.”
Thursday interest rate cut ‘highly likely’ as jobs market slows
Today’s jobs report bolsters the case for the Bank of England to cut interest rates on Thursday, and again in 2026, economists say.
With unemployment its highest in almost four years, and wage growth slowing quickly, the City is confident the Bank will cut interest rates from 4% to 3.75% at its final meeting of the year.
Last month, the Bank split 5-4 when it decided not to cut rates, so only one of those five policymakers need to switch….
Richard Carter, head of fixed interest research at Quilter Cheviot, says today’s jobs figures make a cut seem all the more likely.
“At November’s meeting, the MPC was split almost down the middle, and Andrew Bailey’s deciding vote saw rates held. However, with the economy shrinking – largely thanks to the recent budget and its impact on consumer confidence, spending and business planning – and the outlook for growth rather bleak, a cut is seeming more likely this time around.
“The Bank is still walking a tightrope. While it will want to spur some growth, it won’t want to inadvertently add to inflationary pressures. Nonetheless, should inflation come in lower as expected tomorrow, a rate cut could well be ticked off everyone’s Christmas list.”
ING’s James Smith predicts a cut on Thursday, and two more next year:
Altogether, slowing wage growth combined with further signs of cooling in the wider jobs market hints at the UK becoming less of an outlier on inflation. A rate cut on Thursday is highly likely, and we expect two further moves in the first half of 2026.
Philip Shaw of Investec points out that pay growth, the Bank of England’s favoured measure, slowed – with private sector earnings ex-bonuses slipping to 3.9% in the three months to October from 4.2% in the three months to September.
On its own this report does not provide a case for a cut in the Bank rate on Thursday, but it goes a long way towards demonstrating that long-term inflation pressures are becoming more subdued. A 25bp cut in the Bank rate to 3.75% on Thursday continues to look very likely.
Kathleen Brooks, research director at XTB, also cites the private sector wage growth figures as a reason to cut:
Wage growth moderated slightly, led by the private sector. Private sector wage growth fell below the 4% handle to 3.9% YoY, the lowest level since 2020. Public sector wage growth continues to outpace the private sector, and average weekly earnings moderated only slightly to 4.7% from 4.9% in September.
This was hotter than expected, but we do not see this as an impediment to a Bank of England rate cut later this week. The BOE will look more closely at pay growth in the private sector, and this is moderating to a more reasonable level at a relatively fast pace. This adds to evidence that UK inflation peaked in September, and should give the majority of MPC members the confidence to cut rates.
Deutsche Bank: Peak Budget uncertainty hits labour market
There are worrying signs in the labour market continue as we head towards Christmas, warns Sanjay Raja, chief uk economist at Deutsche Bank Research.
Raja says:
Peak Budget uncertainty has seemingly impacted hiring plans. The jobless rate hit a new cyclical high of 5.1%. Payrolled employees (after another upward revision to October) dropped by 38k in November (expect this to be revised higher too). The redundancy rate also ticked higher to 156k in the three months to October. Much of the increase in the jobless rate, however, rests on higher participation, which increased by 77k in the three months to October (as opposed to the 43k increase in unemployment).
Regardless, signs of slack are rife. The share of marginally attached workers (those outside the labour market wanting a job) have hit a new cyclical high of 23.4% – its highest rate since the onset of the pandemic (and accounts for a substantial 2.1m people). And looking at the breakdown of the jobless rate, it’s the younger cohorts that have been impacted the most. The 18–34-year-old unemployment rate now sits at 8.7%.
