NatWest – UK mid-sized businesses report fastest growth in almost two years
Business activity returned to growth for mid-market companies during the third quarter of 2026, according to NatWest’s Mid-market Growth Tracker, while the rate of output growth accelerated to its fastest level for 22 months in September.
NatWest’s Tracker – which is based on the Purchasing Managers’ Index™ and surveys mid-market businesses operating in the manufacturing and services sectors – registered 56.2 in September, up from 52.4 in August and the highest since November 2024. The latest reading was above the 50.0 no-change mark for the third month running and signalled a strong rebound in business activity levels at mid-market enterprises.
September data indicated a particularly sharp increase in business activity at mid-market service providers (index at 57.0), with the rate of growth the strongest for over a year-and-a-half. Mid-market manufacturers recorded a moderate upturn in production volumes in September (index at 52.2). The pace of expansion picked up since August but remained softer than the four-year high seen in June.
Survey respondents commented on strong demand for technology services, receding risk aversion among clients and a general improvement in sales opportunities. However, businesses are having to contend with renewed cost pressures and there were still many reports that geopolitical tensions, sluggish economic conditions and squeezed consumer budgets had constrained demand.
September data indicated a moderate increase in employment at mid-market firms, with the rate of job creation the strongest for 22 months, which mid-market companies attributed to a rebound in business requirements, new project starts and long-term efforts to boost capacity.
The uptick in employment data comes as NatWest continues to support mid-market businesses to realise their full potential as growth engines of the UK economy. NatWest’s recent report on The Middle Speaks: Narrowing the mid-market conversion gap, through technology, talent and trade, found that mid-market firms represent one of the UK economy’s greatest growth opportunities, contributing around £1.2 trillion in turnover and employing 7.3 million people across the UK.
SME business conditions close to stabilisation
Latest PMI data indicated that business conditions faced by small and medium-sized enterprises (SMEs) were close to stabilisation in September. Business activity and new orders both fell only marginally, while employment declined at the weakest pace since February.
At 49.8 in September, the NatWest tracker rose from 47.8 in August and was just fractionally below the neutral 50.0 threshold that separates growth from contraction. Furthermore, the reduction in business activity was the softest recorded since the current period of decline began in November 2025.
Steady improvement in business optimism
Mid-market business activity expectations for the year ahead strengthened in September and were the second highest since March. Moreover, the degree of confidence remained above the three and a half year low seen in May. Positive sentiment was recorded in both the manufacturing and service sectors.
Easing geopolitical tensions and a gradual turnaround in domestic economic conditions were cited as factors that could boost business activity in the next 12 months. Greater productivity, alongside planned investments in new products and technologies were also reported as reasons for optimism.
This aligns with NatWest’s The Middle Speaks report, which found that technology presents the greatest long-term opportunity for productivity growth, while highlighting the need to help firms move from initial AI adoption to strategic deployment at scale.
The report also identified that over half (55%) of mid-market firms identify talent and leadership development as a top barrier to growth. Meanwhile 42% say recruitment and workforce capability are the economic challenge most likely to constrain expansion.
SMEs continued to express optimism towards the 12-month outlook for business activity during September, with the respective index posting comfortably above the neutral 50.0 level at 60.9. That said, the overall degree of positive sentiment slipped to the weakest since June, driven by softer expectations across both manufacturers and service providers.
Positive outlook for UK exporters
The latest survey pointed to sustained optimism regarding future foreign demand for UK goods and services. Approximately 34% of panellists anticipate an increase in new export work over the next 12 months, while only 13% expect a decline.
AI is emerging as an area of potential export growth for UK businesses, with 7% citing AI and data-centre demand as an opportunity for overseas sales over the coming year. Businesses pointed in particular to higher spending on AI infrastructure, including data centres, while new AI and digital products and services were also expected to support export sales.
Optimism was stronger among manufacturers than service providers when assessing their export prospects in September. Two in five (40%) goods producers forecast an improvement in overseas sales, compared to 14% that project a deterioration.
Services companies were also generally confident that export sales will rise over the year ahead, with just over one in four (26%) firms anticipating an increase, while only 12% expect a decline.
NatWest’s The Middle Speaks report found that many mid-market firms have established international relationships with ambitious plans to grow. However, they often lack dedicated customs, legal, and compliance teams, as well as geopolitical expertise and supply chain flexibility.
Sebastian Burnside, NatWest’s chief economist, said: “September’s business activity scores are further evidence of stronger growth for UK business in Q3, as the economy has beaten expectations for much of this year. Mid-market output rose at its fastest pace for almost two years, with the headline index climbing to 56.2, led by a particularly robust recovery in services. Manufacturing also expanded, while the SME index improved sharply to 49.8 – just below the threshold separating growth from contraction.
“Stronger new orders and renewed job creation suggest mid-market firms are investing for growth, however, rising fuel and wage costs – alongside geopolitical uncertainty and pressure on household budgets – mean that sustaining this recovery will depend on businesses continuing to adapt rapidly to a changing environment.”
Andy Gray, managing director of Commercial Mid-Market at NatWest said: “There is a growing sense that the UK’s mid-market is gaining momentum. As the UK’s leading bank for the mid-market, we hear from our customers that businesses are seeing opportunities emerge, committing to new projects and looking again at how they can invest for future growth.
“Mid-market businesses are the engines of regional growth. They create jobs, invest locally and strengthen the economic ecosystems around them. While the wider environment remains complex, with cost pressures and geopolitical uncertainty continuing to shape decision-making, what is encouraging is that businesses are looking beyond those immediate challenges, with investment in productivity, technology and new products helping them position for the opportunities ahead.”