Britain’s private sector has returned to growth for the first time in three months, offering an early boost to business confidence and the new Labour government amid continuing geopolitical tensions over Iran.

A closely watched survey of purchasing managers by S&P Global showed the **UK Composite Purchasing Managers’ Index (PMI)** rising to 52.1 in July from 49.3 in June, moving back above the 50 level that separates expansion from contraction and beating all forecasts in a Reuters poll. The data suggests the economy is regaining momentum after a spring slowdown driven by surging energy costs and financial market volatility linked to the conflict in Iran.

Early economic tailwind for Burnham government

The improvement in business activity comes at a politically sensitive moment, providing what economists described as a “welcome tailwind” for Prime Minister Andy Burnham as his administration sets out its economic strategy. The survey found UK firms were the **most upbeat since the Iran war began**, with expectations for future output strengthening as cost pressures showed signs of easing.

Burnham, who took office after campaigning on an agenda of growth, investment and stronger public services, faces a challenging backdrop of elevated inflation, strained public finances and global uncertainty. The return to growth in the PMI, a high-frequency indicator watched closely by the Treasury and the Bank of England, will be studied for clues on whether business sentiment is stabilising and the risk of a deeper downturn is receding.

Services and manufacturing both in expansion

The turnaround appears broad-based. The **services flash PMI** rose to 51.8 in July from 48.8 in June, its strongest reading since April, signalling that the UK’s dominant services sector – including professional services, transport, hospitality and consumer-facing businesses – has shifted back into expansion. Meanwhile, the **manufacturing PMI** climbed to 52.8 from 52.5, extending a period of modest growth despite continued supply chain disruption and higher input costs.

Survey respondents reported firmer demand in both domestic and export markets, with some manufacturers citing a stabilisation in orders after several months of weakness. The combined composite reading of 52.1 is the highest since February, before the full economic impact of the Iran conflict filtered through to energy markets and business confidence.

Cost pressures ease as oil volatility stabilises

One of the most encouraging signals from the survey was a **moderation in cost pressures**, following a period in which firms had been grappling with surging energy and transport bills. While Brent crude recently moved above $100 a barrel amid heightened geopolitical tensions, price swings have become less extreme than earlier in the conflict, and companies reported some relief in non-energy input costs.

According to the PMI, input inflation – the rate at which firms’ costs are rising – slowed again in July, and businesses reported greater success in passing earlier increases on to customers without further sharp rises. That dynamic, if sustained, could help the Bank of England in its effort to steer inflation closer to target, while reducing the pressure on household budgets.

Geopolitical backdrop: conflict in Iran still looms

The survey explicitly linked the improvement in activity to a **brief respite in the Iran war**, suggesting that even short-lived reductions in geopolitical risk can translate quickly into improved business sentiment. The conflict has weighed heavily on global equity markets and the UK’s FTSE 100, which recently fell more than 11% from its record peak and slipped below 10,000 points, erasing its gains for 2026.

US political tensions over Iran have added to the uncertainty. Markets were rattled by a warning from the US administration that Iran must ensure safe passage of oil tankers or face potential strikes on its electricity infrastructure, an ultimatum that sent European equities sharply lower and pushed investors into safer assets. UK policymakers have convened emergency meetings to assess the economic repercussions, with officials warning that some degree of price pressure remains "unavoidable" while the conflict persists.

Markets weigh growth data against risk

The latest PMI figures arrive as investors continue to reassess the outlook for UK assets. The FTSE 100 has suffered a series of declines amid the oil shock and weaker global risk appetite, even as some large-cap companies, particularly in pharmaceuticals and technology, have reported resilient earnings. The PMI’s stronger-than-expected showing may encourage the view that the domestic economy is proving more resilient than equity indices suggest.

For the Bank of England, the data complicate an already delicate balancing act. Stronger activity and firmer demand could support growth and employment, but may also limit how quickly inflation can fall back to target. At the same time, the easing in cost pressures reported in the survey points to a potential decline in underlying price momentum, giving policymakers room to consider a more measured path for interest rates.

Business confidence improves but recovery remains fragile

Despite the more positive tone, business leaders caution that the recovery remains **fragile and highly contingent** on global events. A renewed escalation in the Iran conflict, further disruption to energy supplies or sharper corrections in global equity markets could quickly undermine the improvement in sentiment captured by July’s PMI.

Executives in sectors such as manufacturing, logistics and retail told surveyors they were using the current period to rebuild order books, manage inventories more conservatively and reassess hedging strategies for energy and currency exposure. Some firms reported plans to restart postponed investment projects, but many indicated they would move gradually until there was clearer evidence that geopolitical risks were receding.

Implications for households and the wider economy

If the shift back into expansion persists, analysts say it could translate into **stronger job creation** and a stabilisation in household incomes after a difficult period of high living costs and subdued wage growth. Services sector strength is particularly important, given its outsized role in UK employment and GDP.

However, households are still facing elevated energy and food prices, and higher borrowing costs following previous interest rate increases. The PMI’s message is that the corporate sector is beginning to find its footing, but the full benefits for consumers will materialise only if the improvement continues over several months and is not derailed by fresh external shocks.

Strategic choices ahead for economic policymakers

The Burnham government is expected to use the PMI data as evidence that a focus on stability and investment can generate dividends even in a turbulent global environment. Ministers are likely to highlight the survey in their discussions with business groups and unions as they seek to build support for reforms aimed at boosting productivity, accelerating infrastructure delivery and attracting long-term capital into the UK.

Economists note that PMI surveys can be volatile month to month and do not capture all aspects of economic performance. Yet they often provide one of the earliest signals of changes in activity. July’s move back above 50, coupled with the strongest reading since February and improved expectations among respondents, will therefore carry weight in Whitehall and Threadneedle Street as officials decide how aggressively to respond to ongoing global risks.

For now, the message from Britain’s boardrooms is cautiously optimistic: growth has returned after a three-month hiatus, cost pressures are easing, and the worst fears of a sharp domestic downturn have been avoided – but the path ahead remains dependent on events far beyond the UK’s borders.