British businesses started the final quarter of 2026 with stronger activity, according to preliminary survey data released on 23 October. The improvement offers some encouragement to companies looking for growth, although rising costs and uncertainty ahead of the UK Budget continue to complicate decisions.

The S&P Global UK Composite Purchasing Managers' Index (PMI) rose to 53.1 in October from 52.0 in September. A reading above 50 indicates that private-sector activity is expanding. The latest result marked the strongest rate of growth since February.

More orders and signs of hiring

The survey pointed to improving demand across services and manufacturing. Factory output recorded its strongest increase in more than two years, while service providers reported faster growth in new orders. Some companies also reported stronger demand linked to artificial intelligence investment and technology services.

Businesses began hiring again, according to the survey, marking the first overall increase in employment since September 2024. The improvement was modest, however, and confidence about the year ahead remained below the survey's long-term average.

The figures are an encouraging signal, but a PMI survey is an early indicator rather than a final measure of economic growth. Actual performance will depend on whether stronger orders turn into completed sales, sustained hiring and investment.

Rising costs could limit the recovery

There is a significant concern behind the better headline number. Companies reported accelerating input costs, including higher energy, fuel and freight expenses. The cost increases were not limited to one sector, with businesses also reporting pressure from materials, technology and other operating inputs.

That creates a difficult choice for smaller firms. Raising prices may protect margins, but customers who are already watching their spending could resist increases. Absorbing the costs instead can leave less money available for hiring, product development or expansion.

The survey also comes ahead of the UK Budget, scheduled for 28 October. Businesses have been cautious about some spending decisions while waiting for greater clarity on tax and economic policy.

What should small businesses take from this?

The figures suggest that demand may be improving, but founders should avoid treating one positive survey as a green light for aggressive expansion. Review sales pipelines, check whether new orders are profitable and test how higher supplier costs would affect cash flow.

Businesses considering recruitment or major investment should also distinguish between confirmed demand and optimistic forecasts. A growing market is useful only if a company can serve customers profitably.

The coming Budget and the direction of borrowing costs will help shape the outlook. For now, the message is cautiously positive: activity is picking up, but cost control remains essential.

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Discussion question: Are you seeing more demand from customers this quarter, or are rising operating costs still holding your business back?