UK February Business Confidence Index Rises to 16-Month High

Investing.com - According to the S&P Global UK Business Outlook survey released on Wednesday, UK companies’ expectations for business activity over the next 12 months have strengthened, reaching the highest level since October 2024.

The net balance of UK firms expecting increased activity over the next 12 months rose to +36% in February, up from +33% in October 2025 and +25% a year earlier. The UK reading exceeded the +29% data for developed markets globally.

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The survey was conducted from February 10 to 25, with results calculated before the outbreak of the Middle East war.

Manufacturing companies showed the most significant improvement in sentiment, with a net balance of +45% for future activity expectations, compared to +34% in the service sector. Manufacturers cited stronger exports, expansion plans, product innovation, AI investments, cost-cutting measures, and defense spending as growth drivers.

Service providers pointed to market expansion, product diversification, and AI spending as key factors, despite ongoing impacts from tax hikes, low consumer confidence, and competitive pressures on market sentiment.

Profit expectations also improved, with the net balance of companies expecting profit growth rising from +5% in October 2025 to +13% in February. Manufacturing profit expectations reached +23%, while service sector companies expected +11%.

UK companies forecast significant increases in business costs over the next 12 months. The net balance of firms expecting rising employee costs remained at +70% in February, while those expecting non-wage costs stood at +52%. Cost expectations excluding employee expenses for manufacturers reached the highest level since October 2022, linked to supply chain disruptions, metal market volatility, and geopolitical tensions.

Companies plan to continue cutting costs, with expected reductions in capital expenditure and R&D spending. The net balance for R&D spending was -8%, and for capital expenditure, -2%. Manufacturing capital expenditure was slightly positive, with a net balance of +1%.

Employment expectations remain positive but somewhat subdued, with a net balance of +7% for workforce expansion over the next year, below the long-term trend. Manufacturing hiring forecasts reached +14%, while the service sector was at +5%.

Businesses plan to significantly raise sales prices to support profit growth.

David Owen, senior economist at S&P Global Market Intelligence, stated that UK companies, showing moderate confidence in 2025, are more optimistic about the economic and business outlook for 2026. He noted that the outbreak of the Middle East war could alter the outlook, as UK firms are particularly vulnerable to rising global energy prices.

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