UK business activity picked up more strongly than expected in December, as flash Purchasing Managers Index (PMI) data showed the private sector ending the year on a firmer footing and edging further away from recession.

According to flash survey figures, the UKs private sector output index rose as both manufacturing and services reported expansion, with manufacturing activity reaching its highest level in around 15 months and overall growth beating economists expectations. The flash manufacturing PMI climbed to 51.2 in December from 50.2 in November, above the consensus forecast and firmly back in expansion territory above the 50 threshold that separates growth from contraction.

Manufacturing leads a broader upturn

The improvement was led by manufacturers, who reported rising output and new orders after a prolonged period of weakness. A reading of 51.2 marked the strongest manufacturing performance since the middle of last year, suggesting that the sector is finally beginning to stabilise after being hit by higher borrowing costs, subdued global demand and lingering post-Brexit trade frictions.

Services, which account for the bulk of UK economic output, also continued to grow, helping lift the composite measure of private sector activity to an eight-month high, according to the flash survey data. While service providers remain cautious about the outlook, particularly in consumer-facing segments, the data point to a modest but broad-based expansion heading into the new year.

Recession fears ease, but growth remains fragile

The stronger PMI readings follow a period in which the UK economy has been close to stalling, with recent official data showing a slight contraction in output in October and only patchy growth over the autumn months. The latest survey results therefore reduce the immediate risk of a technical recession, defined as two consecutive quarters of negative growth, but do not yet signal a robust recovery.

Business surveys from the Office for National Statistics have highlighted persistent challenges, including weaker demand and heightened economic uncertainty, which a third of trading businesses recently cited as affecting turnover. Many firms continue to report pressure on costs and margins, even as headline inflation has eased from last years double-digit peaks.

Pricing power and cost pressures in focus

The latest business insight data indicate that while input costs are rising for a significant share of companies, fewer firms are raising their own selling prices compared with earlier in the inflation cycle. In November, more than a quarter of trading businesses reported an increase in the prices of goods or services they bought, but less than one in ten reported increasing their selling prices.

Forward-looking responses also show a growing proportion of businesses expecting to raise prices early next year, with labour costs, energy and raw materials all cited as key drivers. That backdrop, combined with the PMI evidence of improving activity, will be closely watched by policymakers for signs of persistent domestic inflationary pressure.

Implications for the Bank of England

The stronger-than-expected December flash PMI complicates the debate over when the Bank of England might begin cutting interest rates from their current restrictive levels. Financial markets had been pricing in the possibility of rate reductions next year as growth slowed and inflation continued to fall from 3.8% to 3.6%, still above the Banks 2% target.

At its most recent policy meeting, the Monetary Policy Committee narrowly voted to hold Bank Rate, with a tight split reflecting concern about both weak growth and still?elevated inflation. A firmer run of business survey data, if sustained, could make the Bank more cautious about loosening policy too quickly, particularly if wage growth and corporate pricing intentions remain inconsistent with a timely return of inflation to target.

Corporate sentiment and investment

While the latest PMI readings suggest a tentative improvement in business conditions, survey and official data show that corporate sentiment remains subdued. The Bank of Englands Decision Maker Panel has reported that firms continue to adjust to higher borrowing costs by accepting lower profit margins, delaying investment and tightening cost controls.

Separately, the ONSs most recent business insights survey found that economic uncertainty is now the most commonly cited challenge to turnover, with fewer than three in ten firms saying they face no significant turnover headwinds. That uncertainty is likely to weigh on capital spending and hiring decisions, even as headline activity indicators improve.

Outlook for 2026

The year-end acceleration in private sector activity provides a modest boost to the UKs near-term outlook, suggesting that the economy may avoid a prolonged downturn if support from lower inflation and a gradual easing in financial conditions continues. However, the recovery remains fragile and uneven across sectors, with consumer-facing industries and smaller businesses still exposed to high costs and weak demand.

Much will depend on how quickly real incomes recover, how business investment responds to greater clarity on interest rates, and whether global demand for UK exports continues to improve. For now, the December flash PMI offers a rare piece of positive news for UK businesses at the close of a challenging year, but one that policymakers and executives alike are likely to treat with cautious optimism.