High street businesses across the United Kingdom are bracing for a challenging year ahead as escalating operational costs threaten to squeeze profits. Fresh economic data indicates that the financial burden on companies increased at its most rapid rate since May, driven by persistent wage pressures and elevated energy bills.
PMI Data Points to Mounting Cost Pressures
The latest Purchasing Managers' Index (PMI) from S&P Global, a key monthly survey of hundreds of companies, revealed that cost pressures intensified sharply towards the end of 2025. The jump in input costs during December was attributed primarily to rising fuel prices and increased wage demands from employees.
This surge in costs fed directly into higher prices for goods and services. Notably, this followed a November reading for output price growth that had hit a near five-year low, marking a significant reversal.
Sluggish Growth and Job Cuts Loom
The services PMI registered a slight increase to 51.4 in December, remaining above the neutral 50.0 mark that separates growth from contraction. However, this figure was below the 52.1 estimate provided by S&P Global earlier in the month and points to sluggish growth within the UK's vast private sector.
The composite PMI, which includes the manufacturing industry, also stood at 51.4, signalling that the UK economy essentially stagnated as it closed out the year. The survey also flagged concerns over employment, with 21 per cent of respondents reporting a decline in staffing levels.
A Glimmer of Confidence Amidst the Gloom
Despite the immediate pressures, business confidence managed to reach its second-highest level since October 2024. Companies in the service sector suggested that anticipated lower borrowing costs and potential increases in consumer spending could bolster performance in the coming months.
Matt Swannell, chief economic adviser to the EY ITEM Club, commented on the "disappointing" results, warning they show the economy's vulnerability to further shocks. "While little signal can be taken from the month-to-month moves in the PMI, it will likely be difficult for the UK economy to gain momentum over the course of this year," Swannell stated. He highlighted that fiscal policy will continue to tighten and real income growth will slow.
Navigating a Complex 2026 Landscape
City analysts and business leaders are hoping 2026 will deliver better outcomes than 2025, a year marked by growth figures inflated by high government spending and uncertainty from former US President Trump's tariff threats. However, significant hurdles remain.
Economists have warned that substantial public sector expenditure risks crowding out private investment. Meanwhile, organisations like the Confederation of British Industry (CBI) have revised growth forecasts upwards based on expected state spending.
Looking ahead, a combination of a heavy tax burden, new employment regulations, and the persistent threat of geopolitical instability is expected to keep business leaders on edge throughout 2026.
