UK private sector output continued its expansion into the first quarter of 2026, underpinned by robust performance from mid-market businesses, fresh data from NatWest reveals. The NatWest UK Business Growth Tracker, based on a Purchasing Managers’ Index-style survey of manufacturing and services firms, registered 53.0 in March—well above the 50.0 no-growth threshold—marking over five years of continuous growth.

Mid-Market Leads Upturn Amid SME Caution

The upturn was spearheaded by the services sector, which posted an index of 54.2, while manufacturing output softened to 46.5, reflecting contraction in production volumes. Small and medium-sized enterprises (SMEs) saw only a marginal decline in activity, milder than at the end of 2025, signalling underlying stability.

However, business confidence waned amid escalating geopolitical tensions and cost pressures. The Middle East conflict emerged as a key concern, cited by firms for potential disruptions to customer demand, supply chains, and input costs. This contributed to softer output growth projections for the year ahead.

Input Price Inflation Hits Multi-Year Peak

Input price inflation accelerated sharply to its highest level since January 2023, driven primarily by escalating fuel costs. This squeeze on margins tempered optimism, with the Mid-market Future Activity Index dipping to 71.6—the lowest since July 2025—while the SME index fell more markedly to 60.8 from 65.9 in February.

Despite these headwinds, future activity expectations remained solidly above neutral, indicating businesses anticipate continued—albeit moderated—growth. NatWest's findings underscore the UK economy's adaptability, even as external shocks intensify.

Implications for Policy and Investment

The Tracker's insights come at a pivotal moment, with policymakers monitoring inflation and growth amid global volatility. For investors, the data highlights mid-market firms as a resilient segment, though vigilance on energy costs and geopolitics is advised. NatWest economists note that while the expansion persists, the pace may moderate if current pressures persist.