Leading Indicators | A firmer start to 2026…

UK PMIs signal firm Q1 growth  

February’s PMI data points to solid momentum in Q1 2026, with the UK composite index rising to a 22-month high of 53.9. Manufacturing activity strengthened to 52.0 (from 51.8), its highest reading since August 2024, while the UK Services PMI edged down slightly to 53.9, but remained comfortably in expansionary territory for a 10th consecutive month. Together, these indicators point to a meaningful pick-up in activity at the start of the year. If this pace holds through March, current PMI levels would be consistent with Q1 GDP growth of just over +0.3% QoQ.  

Retail sales point to stronger consumer demand  

Retail activity also strengthened at the start of the year. In January, retail sales values (excl. fuel) surged by +6.5% YoY, while volumes increased +5.5% - a clear sign of firmer consumer demand (albeit flattered slightly by a weak comparable from January 2024). More broadly, it appears households are beginning to ease the caution that has shaped spending behaviour in recent years, with consumption holding up as confidence gradually improves.

What are the key concerns for UK businesses?  

Of Real Estate respondents in the latest Business Insights and Conditions Survey (BICs) identified interest rates as their primary business concern, compared with just 1% across All Businesses. This comes as inflation has eased to 3.0% - a ten‑month low - reinforcing the disinflation trend and strengthening expectations for a Bank of England rate cut in March. With money markets pricing in two 25bp cuts this year, which would bring the Bank Rate down to 3.25%, the policy backdrop is beginning to shift in a direction that is increasingly supportive.