The UK economy is entering the autumn with an increasingly difficult combination of weak growth, persistent inflation and deteriorating public finances. None of these pressures, taken individually, points to an immediate economic break. Together, however, they leave policymakers with unusually little room for manoeuvre and create a less forgiving environment for businesses, lenders and investors.

September’s S&P Global Composite PMI fell from 52.5 to 51.7. Activity therefore remains above the 50.0 threshold associated with expansion, but momentum weakened during the month. S&P Global estimates that the September reading is consistent with quarterly GDP growth of only around 0.1%, although the third quarter as a whole could produce growth of approximately 0.2%. New business softened, confidence remained subdued and companies continued to report pressure from energy costs, financing conditions and uncertainty ahead of the October Budget.

The composition of that slowdown deserves attention. Both manufacturing and services continued to expand in September, but both lost momentum. Financial services were particularly affected by higher market interest rates and financial volatility, while some consumer facing and business services performed somewhat better. Employment also continued to decline, suggesting companies remain cautious about committing to additional capacity while demand visibility is limited.

Manufacturing provides one counterpoint. The CBI factory order balance improved from negative 25 in August to negative 9 in September, its strongest reading since July 2023. Over two months, the balance improved by 36 points, the largest such increase in the survey’s 49 year history. Expectations for future output also strengthened, while expected price increases moderated from positive 22 to positive 12. The figures suggest that industrial conditions may be stabilising even as the broader economy loses some momentum.

The more difficult signal comes from inflation. S&P Global reported that selling price inflation across goods and services accelerated to its fastest pace since June, driven by energy costs, wages and supply constraints. The survey points toward consumer price inflation rising further from the 3.1% recorded in August. More importantly for monetary policy, service sector price pressures increased. Services inflation tends to be more closely associated with underlying domestic inflation than volatile goods prices, making it particularly relevant to the Bank of England.

That leaves monetary policy caught between opposing signals. Stronger price pressures argue for restrictive policy, while weak output and employment argue against imposing significantly higher borrowing costs on an already slow economy. At the Bank of England’s latest meeting, three of nine policymakers voted to increase the policy rate from 3.75% to 4.0%, while six preferred no change. The September PMI data reinforce that tension rather than resolving it.

Fiscal policy offers little obvious relief. Public sector net borrowing reached £18.3 billion in August, above the £15.5 billion expected by economists surveyed by Reuters. Cumulative borrowing between April and August reached £77.3 billion, which was £8.1 billion above the Office for Budget Responsibility forecast. Previous borrowing estimates were also revised upward.

Inflation is contributing directly to the problem. Higher prices are increasing government expenditure on goods, services and inflation linked welfare payments, while elevated gilt yields are raising the cost of financing the public debt. One estimate cited by Reuters suggests fiscal headroom against the government’s main rules has fallen from more than £24 billion in March to just over £10 billion. That leaves considerably less capacity to absorb economic disappointments or introduce significant support measures without offsetting fiscal changes.

For private markets, the interaction among these pressures matters more than any individual data release. Sluggish real growth limits organic revenue expansion. Persistent inflation complicates margin management and keeps pressure on interest rates. Elevated sovereign borrowing costs influence the wider cost of capital, while constrained fiscal capacity reduces the probability that government spending can provide a substantial offset to weaker private demand.

The result is not necessarily recession, but a narrow policy corridor. The UK still has areas of resilience, including improving factory orders and continued private sector expansion. Yet the economy is being asked to absorb elevated financing costs at the same time that inflation remains above target and fiscal flexibility is diminishing.

For private equity and M&A, that argues for greater attention to financing sensitivity, pricing power and exposure to government spending when underwriting UK assets. The central macro question is no longer simply whether growth continues. It is whether growth can remain positive for long enough for inflation pressures to moderate, allowing monetary conditions to become less restrictive without creating an additional fiscal problem.

Reuters. (2026). UK borrowing overshoot darkens backdrop for Healey's budget. https://www.reuters.com/world/uk/uk-borrowing-overshoot-darkens-backdrop-healeys-budget-2026-09-22/

Reuters. (2026). UK factory orders show best performance since July 2023, CBI survey shows. https://www.reuters.com/world/uk/uk-factory-orders-show-best-performance-since-july-2023-cbi-survey-shows-2026-09-22/ 

S&P Global. (2026). UK flash PMI signals slower growth and rising inflation in September. https://www.spglobal.com/market-intelligence/en/news-insights/research/2026/09/uk-flash-pmi-signals-slower-growth-and-rising-inflation-in-september