Global private sector activity showed a mixed picture in July, with Eurozone growth reaching an 11-month high, UK expansion losing momentum, and US output accelerating to its fastest pace this year. The latest Flash Purchasing Managers’ Index (PMI) surveys point to uneven trends across sectors and regions, reflecting how trade policy shifts and cost pressures are influencing business conditions.

Eurozone growth reaches 11-month high despite mixed sector performance

Eurozone business activity rose for the seventh consecutive month in July, reaching its fastest pace of growth in almost a year. The HCOB Flash Eurozone Composite PMI Output Index climbed to 51.0 from 50.6 in June, with stabilising new orders signalling that the recent period of contraction in demand may be ending. The recovery remains modest, but the data suggests that momentum is gradually improving across the single-currency bloc.

Sector trends diverged in July, with the services economy regaining its position as the main driver of growth. Service providers reported the strongest expansion since January, helped by an increase in new business for the first time in six months. Manufacturing, by contrast, showed only marginal production growth and experienced another drop in new orders, highlighting continued weakness in goods demand.

Regional performance within the Eurozone remained uneven. Germany registered a second month of marginal growth, while France continued to see output decline, albeit at the slowest rate in its current 11‑month downturn. The rest of the Eurozone reported a solid expansion, the strongest since February, underlining the resilience of smaller and mid-sized economies in offsetting weaker performance in France.

Although total new business stabilised, new export orders continued to fall, with the pace of decline accelerating slightly compared to June. Export weakness has persisted on a monthly basis since March 2022 and remains a drag on growth, particularly for manufacturers.

Cost pressures softened further in July, as input price inflation slowed to its weakest pace in nine months and fell below the long-run series average. Manufacturing input costs continued to decline, albeit only fractionally, while service providers reported slower cost increases. Selling price inflation remained modest, matching the rate seen in June, with manufacturing output prices stabilising after two months of declines and services charges rising at a softer pace.

Supply chain indicators showed tentative improvement. The pace of decline in manufacturing purchasing activity eased to its slowest in over three years, leading to smaller reductions in both input stocks and finished goods inventories. Supplier delivery times lengthened slightly for a second consecutive month, matching the most significant delays seen since late 2022, but overall supply conditions remained relatively stable.

UK growth slows as service momentum fades

In the UK, private sector activity continued to expand in July but at a slower pace, as the recovery in the service economy lost some momentum. The Flash UK Composite PMI Output Index slipped to 51.0 from June’s nine‑month high of 52.0. Services output growth cooled to a two‑month low of 51.2, while manufacturing production stabilised after eight consecutive months of decline, marking its best performance since last October.

The shift in momentum was underpinned by weaker demand. Total new orders fell after a marginal rise in June, driven by the sharpest drop in service sector orders since April. Many firms highlighted fragile domestic conditions and ongoing geopolitical uncertainty as weighing on client spending decisions. Manufacturing new orders also came under pressure, reflecting soft export demand linked to US tariffs and reports of delayed global investment spending.

Pricing pressures re-emerged after easing earlier in the year. Input cost inflation accelerated for the first time in three months, with survey respondents citing strong wage growth, higher National Insurance and National Minimum Wage costs, and rising transport and food prices. Companies raised output prices at a faster pace, with service providers leading the increase, resulting in the sharpest selling price inflation since April.

Despite these headwinds, business confidence improved slightly compared to June, reflecting hopes of lower borrowing costs and a rebound in investment spending later in the year. Some manufacturers also noted signs of rising demand linked to increased defence spending. However, overall optimism remained subdued by historical standards, as firms continued to flag persistent economic uncertainty at home and abroad.

Export sales continued to fall, extending the current run of contraction to nine months, though the rate of decline was the softest since January. Service providers managed to limit the downturn in overseas orders, with some firms reporting success in diversifying export markets to offset weaker domestic demand.

US expansion accelerates but manufacturing slips

Across the pond, the US private sector economy grew at its fastest rate so far this year in July, powered by a resurgent services sector. The Flash US Composite PMI Output Index rose to 54.6 from 52.9 in June, signalling a strong start to the third quarter. Services business activity surged to a seven-month high of 55.2, fuelled by rising domestic demand, while manufacturing output growth slowed to a modest pace. The Flash US Manufacturing PMI fell to 49.5, indicating a renewed deterioration in overall factory business conditions.

The divergence between services and manufacturing reflected differing demand trends. Total new orders grew at the fastest pace since May, supported by stronger household and business spending on services, but factory orders fell for the first time this year. Exports declined for the third time in four months, with manufacturers reporting the sharpest drop since April as tariffs and global economic uncertainty weighed on overseas demand.

Capacity pressures were particularly evident in services, where backlogs rose at the steepest pace for more than three years. Companies responded by increasing employment for a fifth consecutive month, with payroll gains in services offsetting staff reductions in manufacturing. Factory employment fell for the first time in three months, reflecting weaker order books and inventory adjustments.

Inventory management shifted markedly. After stockpiling in May and June to pre-empt tariff increases, manufacturers reduced their holdings of raw materials and finished goods in July. Purchasing activity slowed, while supplier delivery times improved for the first time since last September, a sign of easing pressure on supply chains.

Price trends also highlighted the impact of tariffs and labour costs. Input cost inflation accelerated again, registering the second-steepest rise since January 2023. Services costs climbed sharply, while manufacturing input prices, though cooling from June’s post-pandemic peak, remained elevated. Around two‑thirds of manufacturers reporting higher costs explicitly cited tariffs as a key driver, and 40% of service providers linked their increased selling prices to tariffs. Overall, prices charged for goods and services rose at one of the fastest rates of the past three years, just short of May’s recent high.

Business sentiment weakened for the second straight month, falling further below the long-run average. Companies cited ongoing concerns about federal spending cuts, tariffs and broader policy uncertainty. Although optimism still outweighed pessimism, sentiment was the lowest in over two-and-a-half years except for April’s recent low point, underscoring how policy uncertainty is shaping corporate decision-making.

Outlook: mixed momentum amid persistent uncertainty

July’s PMI data reveal contrasting regional dynamics. The Eurozone is experiencing its strongest growth in nearly a year, helped by stabilising demand and moderating cost pressures, though exports remain a drag and confidence has softened slightly. The UK’s momentum is slowing, as services activity eases and businesses respond to rising costs by cutting jobs, although manufacturing has finally stabilised. In the US, growth has accelerated sharply thanks to resilient domestic demand for services, but factory activity is slipping back into contraction and confidence has declined.

For corporate treasurers and CFOs, the July readings suggest that volatility remains a defining feature of the economic landscape. Diverging regional trends, persistent cost pressures and policy-related uncertainty, particularly around tariffs, are shaping demand, investment and pricing strategies across sectors. While some regions are showing signs of resilience, the patchwork nature of the recovery underscores the importance of agile financial planning, particularly for firms exposed to international supply chains and global capital flows.