Mid-market firms drive optimism for 2026 as SME pressures persist

Mid-market businesses ended 2025 on a strong footing, reporting rising output, healthier order books and growing confidence for the year ahead, according to the latest NatWest UK Business Growth Tracker.

The data, drawn from Purchasing Managers’ Index (PMI) surveys across the manufacturing and services sectors, showed overall mid-market activity reaching 55.3 in December, up from 54.3 in November. Readings above 50 indicate expansion. The improvement aligns with recent figures from the Office for National Statistics, which reported 0.3% GDP growth in November, led by services.

NatWest said mid-sized firms credited the boost to better order numbers, new product launches and increased customer demand. Growth was broad-based, with manufacturing registering 51.1 and services 56.0 on the tracker.

Despite the upbeat picture among mid-market firms, small and medium-sized enterprises continued to face challenging conditions. SMEs reported ongoing hesitancy among customers following the late-November Budget, contributing to weaker demand and slower decision-making on purchases and hiring. December marked the fifteenth consecutive month of job losses in the SME sector, though the pace of reduction eased.

Cost pressures continued to build for smaller businesses. Rising wage bills, fuel costs and food prices pushed input inflation to its highest level since April. Many SMEs raised prices in response, marking the sharpest increase in output charges in five months. Mid-market firms also increased selling prices, with inflation rising to a seven-month high.

He noted that mid-market firms had closed 2025 with “a strong surge in sales”, whereas SMEs continued to navigate “a challenging environment”, although some easing in cost pressures may emerge if inflation falls.

New order trends diverged sharply between the two groups. Mid-market companies saw a fourth straight month of growth in incoming business, while SMEs recorded another decline. Even so, the rate of contraction among smaller firms slowed from earlier in the year.

Employment trends remained negative across the board. Mid-market businesses made modest staffing reductions in December, while SMEs again cut jobs, albeit at a slower pace than in November.

Andy Gray, Managing Director of Commercial Mid-Market at NatWest, highlighted the wider economic significance of the segment. He referenced bank research suggesting that a 1% uplift in mid-market growth could add £35 billion to the UK economy by 2030. He said last year’s creation of the Mid-Market Growth Council, supported by the government, aimed to promote “tailored support to unlock the full potential of these businesses”.

Looking to the year ahead, both SMEs and mid-market firms reported positive expectations for 2026, though sentiment among SME service providers dipped to an eight-month low. Confidence across mid-market businesses strengthened in December, remaining above the national average but still short of levels seen in October.