Cost burden on firms rise at fastest pace since May
Cost burdens on firms rose at their fastest pace since May as bosses dealt with wage growth pressures and sky-high energy prices, new data has indicated.
S&P Global’s latest purchasing managers’ index (PMI), a monthly survey tracking hundreds of companies’ performances, showed that cost increases became heavier at the end of last year.
Researchers said the jump in costs in December came as a result of higher fuel prices and demands from workers for higher wages.
Higher input costs resulted in stronger inflation for products, a month after November’s output price growth reading was a near five-year low.
The services PMI edged up slightly to 51.4 in December, above the neutral 50-mark threshold though reflecting sluggish growth in the UK’s private sector.
The reading was also lower than the 52.1 estimate posted by S&P Global in the middle of the month.
The composite figure, which includes manufacturing, hit 51.4, signalling that the UK economy ended the year with little to no growth.
More job cuts were also flagged by respondents, with 21 per cent saying they had seen a decline in employment.
Business confidence, however, hit its second-highest level since October 2024, with service sector companies suggesting that lower borrowing costs and greater spending could improve performances.
Nerves about cost pressures in 2026
Matt Swannell, chief economic adviser to EY ITEM Club, said the “disappointing” results showed that the UK economy was vulnerable to further economic shocks.
With the tax rises announced at the Autumn Budget towards the bottom end of expectations, some businesses’ pre-Budget worries have eased,” Swannell said. “But concerns over political stability remain.
“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. Fiscal policy will continue to tighten, real income growth will slow, and some mortgages will still be refinanced to higher mortgage rates.”
City analysts and business leaders hope that 2026 yields better results than in 2025 when higher government spending padded out the country’s growth figures and President Trump’s tariff threats unnerved exporters.
Some economists have raised the alarm on the public sector crowding out private sector investment, with the Confederation of British Industry (CBI) upgrading its growth forecasts for the upcoming year based on higher state expenditure.
The heavy tax burden, new employment regulation and threat of further geopolitical breakdowns is expected to keep businesses on edge throughout the year.