Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK said: “If we’re not careful, we might have to stop talking about resilience and actually start talking about a reasonable economic performance this year. A further rise in the S&P Global Flash UK PMI in August points to the economy growing by about 0.3% in Q3. What’s more, consumer confidence rose this month to its highest level in two years. That suggests households and businesses have taken the Iran war and change of administration remarkably well.

“Admittedly, it’s not all positive. The labour market remains the weak spot in the economy, and although the employment balance ticked up slightly in August it has now been below the neutral level of 50 for 23 months. Indeed, worries about job prospects were the weak spot in this morning’s consumer confidence data as well.

“Input prices and output prices also rose again, probably reflecting a renewed rise in oil prices. However, more broadly for the Bank of England (BoE), today's survey should reinforce the case for keeping interest rates on hold this year. The continued weakness in the employment index should offset the improvement in headline activity. However, a more resilient economy combined with higher energy prices means the risk of another rate hike later this year has increased.

"The second half of the year looks more challenging, though. Oil prices are rising again and inflation will rise to around 3.5% later this year, squeezing household incomes. The next budget also has the potential to make or break the final quarter. A repeat of the confidence sapping speculation about tax rises will cause growth to slow sharply. However, the economy is clearly holding up so far this year, providing a better-than-expected backdrop for the budget.”

Commenting on the latest Flash Manufacturing PMI which dropped to 51.5 in August, Emily Sawicz, Director and Industrials Senior Analyst at RSM UK, added: “Today’s PMI data points to a manufacturing sector that remains in moderate expansion, with improving demand conditions helping to stabilise activity after growth slowed through the summer. However, the pace of expansion remains relatively modest by historical standards.

“Manufacturers are benefiting from areas of structural demand, including investment linked to data centre construction and wider infrastructure projects. At the same time, lower supply chain disruption is reducing some of the operational pressures that businesses faced earlier in the year. These factors should help to support production levels heading into the second half of 2026.

“Despite expected improvement, there are still clear headwinds impacting the sector. The inventory building and front-loading that boosted activity in April and May continues to unwind, while export markets remain challenging amid global trade uncertainty. Higher labour costs, elevated input price inflation and a weakening UK labour market are also likely to weigh on confidence and investment decisions.

“A reading of 51.5 would signal that the sector remains on a positive trajectory, but the moderation from May’s peak suggests manufacturers are entering a period of steadier, slower growth. The key question for the rest of the year is whether improving domestic demand and investment can offset ongoing pressure from exports, costs and ongoing geopolitical uncertainty.”

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