Strongest rise in UK business activity in a year – PMI
More good news: the UK’s business activity posted its biggest growth in a year this month, led by a solid upturn in the service sector, according to a closely-watched survey.
The ‘flash’ reading from the S&P Global PMI survey showed improvement across the private sector, despite employment remaining a weak spot, with companies cutting hiring for an eleventh month.
The headline index rose to 53.0 in August from 51.5 in July, indicating faster expansion in business activity.
Input cost inflation edged up to its highest since May.
Chris Williamson, chief business economist at S&P Global Market Intelligence,
The flash UK PMI survey for August indicated that the pace of economic growth has continued to accelerate over the summer after a sluggish spring, the rate of expansion now at a one-year high. The services sector has led the expansion, but manufacturing also showed further signs of stabilising.
He cautioned that order books show that demand remains “uneven and fragile”.
Companies report concerns over the impact of recent government policy changes, as well as unease emanating from broader geopolitical uncertainty. Goods exports are still falling especially sharply.
Payroll numbers also continue to be cut at an aggressive rate by historical standards as firms cite weak order books and concerns over rising staff costs due to the policies announced in the autumn Budget, which also contributed to persistent inflation pressures.
While the rise in business activity signalled by the PMI alongside the uplift in inflation to 3.8% in July lower the chances of further rate cuts this year, more data are required to assess both the sustainability of robust economic growth as well as the stickiness of the upturn in price pressures. Among a divided Bank of England rate setting committee, the perceived need for any future rate cuts will be very much data dependent.
Key events
WH Smith shares slide 40% after broker downgrade
The sell-off has intensified after WH Smith’s £30m accounting blunder and profit downgrade, and its shares are now down by 40%, at 668.5p.
They slumped as much as 40.9% to 656p, their lowest level since March 2020.
The broker Peel Hunt has cut its recommendation on the stock to ‘hold’ from ‘add’, and slashed its target share price to 755p from 1400p (£14).
Why radical tax reform may be only way for Reeves to balance the books
Here’s some analysis of today’s UK public finance figures:
Despite a good month for the public finances, the Treasury won’t be putting in any champagne orders.
Higher self-assessment tax receipts and an increase in national insurance payments by employers filled the government’s coffers by more than expected in July. The result was that Rachel Reeves’s spending deficit fell to £1.1bn, down by £2.3bn from the same month a year earlier.
That would be cheery news in normal circumstances, but hemmed in by tight fiscal rules, jittery financial markets and a restless public, the chancellor knows not to be complacent.
There is every likelihood that the Office for Budget Responsibility (OBR) will downgrade its outlook for economic growth when Reeves presents her autumn budget, forcing the government to take further action to balance the books.
Waitrose boss James Bailey to leave after just over 5 years
Sarah Butler
James Bailey, the boss of Waitrose, is to exit the upmarket supermarket next month after just over five years. His departure comes a year after the arrival of former Tesco executive Jason Tarry as chairman of the grocer’s parent company the John Lewis Partnership.
Tarry said:
James has done an outstanding job, overseeing significant transformation and growth during a period of change. He’s a great colleague and has been a highly valued member of the executive team.
We will be sad to see James go but understand and respect his decision to step down after five and a half years at the helm. James will leave Waitrose in a much stronger position and I know will be missed by everyone.
Tina Mitchell, the retail director for Waitrose will step in to replace Bailey on an interim basis from the end of September while the company looks to recruit a permanent replacement.
Bailey said:
I’m very proud of everything we’ve achieved together; it’s been a lot of hard work but very rewarding and I’m so happy now to see the business thriving.
Strongest rise in UK business activity in a year – PMI
More good news: the UK’s business activity posted its biggest growth in a year this month, led by a solid upturn in the service sector, according to a closely-watched survey.
The ‘flash’ reading from the S&P Global PMI survey showed improvement across the private sector, despite employment remaining a weak spot, with companies cutting hiring for an eleventh month.
The headline index rose to 53.0 in August from 51.5 in July, indicating faster expansion in business activity.
Input cost inflation edged up to its highest since May.
Chris Williamson, chief business economist at S&P Global Market Intelligence,
The flash UK PMI survey for August indicated that the pace of economic growth has continued to accelerate over the summer after a sluggish spring, the rate of expansion now at a one-year high. The services sector has led the expansion, but manufacturing also showed further signs of stabilising.
He cautioned that order books show that demand remains “uneven and fragile”.
Companies report concerns over the impact of recent government policy changes, as well as unease emanating from broader geopolitical uncertainty. Goods exports are still falling especially sharply.
Payroll numbers also continue to be cut at an aggressive rate by historical standards as firms cite weak order books and concerns over rising staff costs due to the policies announced in the autumn Budget, which also contributed to persistent inflation pressures.
While the rise in business activity signalled by the PMI alongside the uplift in inflation to 3.8% in July lower the chances of further rate cuts this year, more data are required to assess both the sustainability of robust economic growth as well as the stickiness of the upturn in price pressures. Among a divided Bank of England rate setting committee, the perceived need for any future rate cuts will be very much data dependent.
WH Smith shares fall as much as 36%, wiping £500m off its market value
Kalyeena Makortoff
WH Smith shares have fallen as much as 36%, wiping £500m off the stationery to sweets retailer’s market value.
It cut its financial forecasts and launched an independent review after an accounting blunder led the retailer to overstate profits by £30m.
The group discovered the mistake, which related to its North American business, while preparing its year-end results. The travel retailer said it was “largely” because it had logged some of its income too early.
This is related to arrangements it has with suppliers, which offer rebates if the retailer hits sales targets on certain items. However, it is understood that those rebates should have been logged in accounts for the next financial year rather than for the 12 months to 31 August. The problem is believed to be contained to the North American business.
The drop in WH Smith’s shares left its value below £900m on Thursday morning, down from £1.4bn at the market close on Wednesday.
Eurozone business activity strengthens as new orders rise for first time in 15 months
Things are also looking up in the eurozone, where new orders increased for the first time in 15 months in August, helping lift business activity.
Companies also increased their staffing levels for the sixth month running. Meanwhile, inflationary pressures strengthened, with both input costs and output prices rising at sharper rates in August.
However, foreign orders in the manufacturing sector have been affected by Donald Trump’s trade policy.
The flash composite headline index for the eurozone from Hamburg Commercial Bank rose to 51.1 from 50.9 in July, indicating the fastest expansion in business activity since June 2024. This was driven by the manufacturing sector, where production increased at the fastest pace in almost three-and-a-half years. Meanwhile, services business activity rose for the third month running, albeit only slightly and to a smaller degree than in July.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
Things are getting better. Economic activity has picked up in both manufacturing and services. Overall, we’ve seen a slight acceleration in growth over the past three months. Despite headwinds like US tariffs and general uncertainty, businesses across the eurozone seem to be coping reasonably well. The EU Single Market is likely playing a helpful role here, especially since most export and tourism revenues are generated within the EU.
The European Central Bank might wince a little at the rising cost pressures in the services sector. After all, it’s banking on slower wage growth to help bring inflation down in this crucial part of the economy. That said, there’s a bit of relief in the fact that inflation in service-sector selling prices has remained more or less steady.
Manufacturing output has increased for six straight months, with Germany leading the charge. France, which had been a drag in June and July, showed signs of stabilising in August. The same goes for services: France’s recession seems to be tapering off, while Germany is showing growth even if only marginal.
However, US trade policy is leaving its mark, he noted.
Foreign orders in the eurozone manufacturing sector have declined for the second month in a row. Germany had been holding up well, possibly due to pre-emptive purchases from the US, but now it’s also seeing a drop in orders. France has climbed out of the deep hole of falling foreign demand over the last months, but incoming orders are still on the decline.
German business activity rises to five-month high
In Germany, Europe’s biggest economy, business activity improved for a third month, with the pace of growth the fastest since March, but remained modest.
The flash Germany composite PMI output index from Hamburg Commercial Bank came in at 50.9 in August, up slightly from 50.6 in July.
Solid and faster production growth in the manufacturing sector (index at 52.6), which was supported by an increase in new orders at factories, compared with near-stagnant levels of activity in the service sector (index at 50.1).
Employment fell modestly in August, extending a period of declines that stretches back to June last year. The rate at which workforce numbers fell was faster than the month before, reflecting deeper job cuts in the goods-producing sector. This masked a slight pick-up in the pace of hiring in the service sector, where employment levels have risen continuously on a monthly basis since the start of the year.
After reaching a six-month high in July, German business expectations retreated somewhat in August, although firms generally remained optimistic about the year-ahead outlook.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “
Germany’s economy has been growing throughout the summer so far, and the pace of expansion has even picked up slightly. While we’re talking about modest gains here, this trend signals resilience – considering the headwinds like US tariffs, geopolitical uncertainty, and relatively high long-term interest rates.
The recovery is being driven primarily by the manufacturing sector, where output has now increased for six consecutive months, with the latest data showing a noticeable uptick. Particularly encouraging is the surge in new orders, which saw their strongest growth since March 2022. That said, a certain degree of caution remains among businesses. Stocks of inputs continue to decline sharply, which aligns with reduced purchasing activity. This suggests companies are still playing it safe.
He said job cuts in manufacturing are likely part of a broader effort to boost productivity and sharpen competitiveness. At least in the short term, this seems to be working – output has risen significantly.
Input prices in manufacturing have fallen, helped by lower oil prices and a relatively strong euro. On the sales side, manufacturers have passed on some of these cost savings to their customers. In contrast, the services sector saw the opposite trend in August: costs rose more sharply – likely due to rising wages – and companies had enough pricing power to pass parts of those increases on to their clients.
‘French economy close to stabilisation in August’
After a long period of contraction in France, the eurozone’s second-largest economy, there are signs of stabilising business conditions, with hiring picking up.
August’s ‘flash’ purchasing managers’ index survey from Hamburg Commercial Bank showed French private sector output was broadly unchanged on the month, as the headline index edged higher towards the 50 no change, rising from July’s 48.6 to 49.8 this month – the highest reading in a year.
Both manufacturers and service providers posted small declines on the month.
For the first time since November, employment levels increased, with the rate of job creation at a 16-month high. The pick-up in hiring came despite a pessimistic 12-month outlook and continued weak demand.
Jonas Feldhusen, junior economist at Hamburg Commercial Bank, said there was still no clear turning point despite the slight improvement in overall business activity.
On a more positive note, both the manufacturing and services sectors saw less pronounced contractions, which could be interpreted with cautious optimism as an early sign of stabilisation.
The services sector reflects the broader economic picture. Business activity continues to lack growth momentum. The current order situation, especially the sharp deterioration in foreign demand during August, offers little hope for a near-term recovery. Service providers remain cautious in their expectations. Price dynamics have remained relatively stable, but input costs are rising faster than output prices, which suggests that margins may come under pressure.
France’s manufacturing sector continues to feel the strain. Long-standing challenges like weakening international competitiveness and the rise of protectionist policies are shaping a difficult environment. Global supply chains are probably still recalibrating to new tariff regimes, and that’s possibly a reason for noticeably longer delivery times. While the sharp and rapid drop in order volumes seen last month wasn’t repeated in August, the mood among producers has hardly improved.
WH Smith shares slump 30% after profit downgrade
Shares in WH Smith have plummeted by more than 30% after the travel retailer cut its profit forecast.
The company now expects pre-tax profit for the year to 31 August to be around £110m. In April, it was still confident of hitting market expectations of £182.6m.
The share price fell by nearly 31% to 769p, making it the top loser on the FTSE mid-cap index and taking the company’s market value below £1bn, to around £900m.
WH Smith said a financial review had found an overstatement of £30m of expected headline trading profit in North America, and blamed the accelerated recognition of supplier income in the region. North America profits are now estimated to be £25m, rather than £55m.
The group has instructed the accounting firm Deloitte to carry out an “independent and comprehensive review”.
The 230-year-old British business has just sold its highstreet stores to the investment company Modella Capital, but was forced to cut the sale price by £12m to around £40m after trading at the chain deteriorated.
While the high street business, which employs about 5,000 people, will be rebranded as TGJones, WH Smith is retaining its brand for its travel shops in railway stations, airports and hospitals.
Gender pension gap equates to £7,600 a year, say union leaders
On the pension theme… Retired women in the UK in effect go four months of the year without a pension when their income is compared with that of men, union leaders have warned.
The TUC said the income gap between men and women in retirement was 36.5%, equivalent to a shortfall of £7,600 a year on average.
As a percentage this was more than double the gender pay gap, which measures the difference in average earnings from work; it stands at 13.1%.
The union organisation said this meant that retired women effectively stopped receiving a pension from 21 August when compared with men, creating a four-month gap.
Paul Nowak, the general secretary of the TUC, said the income gap between men and women in retirement should be central to the inquiry by the pensions commission, which the government launched last month.
The chancellor will still have to raise taxes in October despite borrowing matching official forecasts, summed up Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics. He is predicting “sin” and “stealth” tax hikes, duty increases and a pensions tax raid.
The big picture remains that the public finances are in chronically weak condition. The chancellor faces surging gilt yields and a likely productivity downgrade from the OBR in the October forecast round.
The litany of policy uturns has only compounded the government’s fiscal woes. We think the chancellor will need to resort to ’sin’ and ’stealth’ tax hikes, duty increases, and a pensions tax raid in order to meet her fiscal rules if she wants to meet her pledge of keeping headline tax rates unchanged.
We expect the bulk of those tax hikes to be backloaded towards the end of the forecast period, minimising any short-term growth implications. But that will buy the Chancellor only precious little time. The public finances are unsustainable in the long-run and delaying action now increases the risks of needing to make sharper adjustments in the future, which would be more disruptive for economic activity.
Nabil Taleb, economist at PwC UK, echoed those comments.
Although tax receipts rose in July, the chancellor remains under pressure as she tries to balance weak growth with the fiscal rules she has committed to. While the government’s manifesto promises to maintain investment and shield working people from tax hikes, analysis from NIESR suggests up to £40bn in additional revenue may be needed to restore headroom and maintain investor confidence in the UK’s public finances.
As the chancellor prepares for the autumn budget, the challenge will be finding creative sources of revenue while treading carefully around the impact on living standards.
However, the outlook has not improved much, said Alex Kerr, UK economist at Capital Economics.
Ultimately, today’s release does little to brighten the gloomy outlook ahead of the budget later this year. The government’s u-turns on spending cuts and potential upward revisions to the office for Budget Responsibility’s borrowing forecasts mean the chancellor may need to raise £17-27bn at the Autumn Budget to maintain the £9.9bn of headroom against her fiscal mandate.
And given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, most of that will have to be funded by tax rises.
The ONS said central government tax receipts increased by £14.8bn to £264.7bn in the financial year so far.
This included increases of £7.7bn in income tax, £3.2bn in VAT and £2.5bn in corporation tax.
Compulsory social contributions increased by £9.5bn to £63.8bn, after changes to the rate of national insurance contributions paid by employers came into effect on 6 April.
Introduction: UK government borrowing falls to £1.1bn in July, despite third-highest year-to-date deficit on record
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK government borrowed £1.1bn last month, the lowest July borrowing for three years, in a boost to the chancellor ahead of her autumn budget.
The figure was £2.3bn lower than a year earlier, the Office for National Statistics said. It was also below economists’ forecasts.
Income tax receipts via self assessment totalled £15.5bn, £2.7bn more than in July 2024.
So far this financial year, from April to July, borrowing totalled £60bn, £6.7bn higher than in the same period last year, and the third-highest borrowing for the period since records began, after those of 2020 and 2021. It is in line with the Office for Budget Responsibility’s forecast of £59.9bn for that period.
Darren Jones, Chief Secretary to the Treasury, said:
We’re investing in our public services, and modernising the state, to improve outcomes and reduce costs in the medium term.
Far too much taxpayer money is spent on interest payments for the longstanding national debt. That’s why we’re driving down government borrowing over the course of the parliament – so working people don’t have to foot the bill and we can invest in better schools, hospitals, and services for working families.
Commenting on today’s public sector finances figures for July 2025, ONS Deputy Director for Public Sector Finances Rob Doody said: (quote 1 of 2) pic.twitter.com/tIS49p7PAA
— Office for National Statistics (ONS) (@ONS) August 21, 2025
The FTSE 100 index managed a record close on Wednesday even though UK inflation came in hotter than expected. The index rose by 1.3%, its strongest daily performance since May, to 9,288, a gain of 98 points.
Many Asian stock markets have made modest gains, while Japan’s Nikkei fell by 0.6% and Hong Kong’s Hang Seng slipped 0.3%. On Wall Street, the tech-heavy Nasdaq closed lower again, by 0.7% while the S&P 500 fell by 0.2% and the Dow Jones was flat.
The minutes of the last US Federal Reserve meeting last night showed two governors backed a cut. Policymakers on the federal open market committee (FOMC) worried about the state of the labour market and elevated inflation, but most agreed that it was too soon to cut interest rates.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
Yesterday’s FOMC minutes further dampened investor mood and accelerated the equity selloff – again led by a significant drop across Big Tech. The minutes stated that Fed officials were worried about both weakening jobs data and inflation risks, but that “a majority of participants judged the upside risks to inflation as the greater of these two risks.” That means officials remain inclined to prioritise inflation control by keeping monetary policy tight rather than cutting rates.
Yet, one caveat makes the minutes look less hawkish than they first appeared: this meeting was held before the release of the problematic July jobs report – with big downside revisions – that spooked investors and fueled expectations for a September cut. Jerome Powell’s speech tomorrow could therefore strike a middle ground: acknowledging rising concern about the labour market, while underscoring that inflation remains a key risk to be addressed carefully.
The Agenda
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Jackson Hole Symposium in Kansas
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8.15am BST: France HCOB PMIs flash for August
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8.30am BST: Germany HCOB PMIs flash for August
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9am BST: Eurozone HCOB PMIs flash for August
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9.30am BST: UK S&P Global PMIs flash for August
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1.30pm BST: US Initial jobless claims for week of 16 August
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3pm BST: US Home sales for July
