Britain’s Economy Holds Up—But Inflation Pressures Are Returning

NatWest’s latest UK economic update argues the British economy remains surprisingly resilient despite the Iran conflict, though rising business costs and weakening trade flows are beginning to erode momentum. 

• UK Services PMI rose to 52.7, signalling continued expansion, while mortgage approvals hit a three-year high.
• Inflation pressures intensified sharply, with 57% of firms reporting higher input costs, the strongest rise since late 2022.
• UK exports to the U.S. fell 24.7% after tariffs introduced in 2025, with car exports particularly affected.
• Labour market softness is increasingly concentrated among younger workers, with rising inactivity and NEET rates flagged as structural risks.

The UK economy is still moving forward. But underneath the resilience, higher energy costs and weaker trade are starting to reshape the outlook.