UK’s mid-market firms show improved business growth in March but economic uncertainty continues
Key findings:
- NatWest’s Mid-market Growth Tracker shows improved business growth in March, led by a strong service sector performance
- SMEs register a softer decline in output levels during March
- Market conditions remain challenging and we could see continued challenges in the coming months
Mid-market businesses continued to outperform the wider UK economy in March, as business activity rose for the sixteenth month in a row, the latest NatWest UK Business Growth Tracker has found.
The NatWest tracker uses the industry standard Purchasing Managers’ Index ™ (PMI®) to provide an ongoing view of business performance and sentiment across the UK. The index picked up from 53.1 in February to 54.7 in March. The rate of growth was solid and slightly faster than that seen on average over 2024. The upturn in business activity among mid-market firms was driven by stronger performance in the service sector, which registered the fastest increase in output for six months.
Whilst the private sector as a whole recorded marginal growth in the first quarter of 2025, small and medium-sized enterprises (SMEs) saw a modest decline in output levels. The headline NatWest UK SME Business Activity Index registered 48.2 in March, below the 50.0 threshold that separates growth from contraction for the fourth month running. However, the index was up from 46.8 in February, making March’s output data the slowest pace of decline recorded so far this year.
NatWest’s tracker also found that UK businesses’ experiences of the economy in the first quarter of 2025 varied substantially depending on their size, sector and location. SME construction companies recorded the fastest downturn in business activity (index at 42.5), followed by manufacturers (44.5), while the service sector showed the most resilience (49.5). Across the mid-market, the services economy was likewise the bright spot (index at 56.3), having recorded its quickest increase in output for seven months. Mid-market manufacturers meanwhile signalled the steepest reduction in production for just over a year (46.3).
Sebastian Burnside, NatWest’s Chief Economist, said:
“Across the private sector as a whole, business output grew modestly in the first quarter of 2025, though the experiences of companies varies substantially by their size, sector and location.
“Mid-market businesses continue to play a leading role in driving economic growth – as seen in the improvement in business output and new orders recorded in March’s data. However, SMEs have found the first quarter of the year more challenging, with subdued demand conditions and rising costs continuing to exert pressure on their margins.
“Price pressures remain high across the board and businesses of all sizes are looking to control costs. Higher payroll costs have led businesses to scale back on recruitment – though our tracker indicates this process may now be largely complete as the employment score is notably stronger in March than it was in February.
“Businesses remained positive about the outlook for the year ahead in March. But as we’ve seen in the last few weeks, market conditions can change rapidly and recent tariff announcements suggest we could see continued uncertainty in the coming months.”
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