Private sector growth in August 2025 picked up across major developed economies, with flash Purchasing Managers’ Index (PMI) data showing the Eurozone registering its first rise in new orders in more than a year, the UK recording its fastest business activity expansion since August 2024, and the US posting its strongest output growth so far this year. The latest figures point to diverging regional trends, however, with inflationary pressures intensifying in both the Eurozone and the US, while UK data highlight ongoing weakness in manufacturing and persistent cost pressures.

The composite PMIs for all three economies remained above the neutral 50 threshold, indicating expansion, and provide early evidence of a stronger start to the third quarter. Yet the underlying detail offers a mixed picture for policymakers: while Europe is benefiting from a rebound in manufacturing, the UK continues to wrestle with employment cuts and fragile industrial activity, and US companies are passing on tariff-driven cost increases at a pace not seen in three years.

Eurozone manufacturing drives revival

The Eurozone recorded its strongest increase in new orders in 15 months, ending a prolonged decline that began in mid-2024. The composite PMI rose to 51.1, a modest improvement on July’s 50.9 and the highest level since May last year, marking the eighth consecutive month of expansion. This recovery was powered by manufacturing, which posted its fastest production growth in nearly three and a half years, with the manufacturing PMI hitting 50.5. By contrast, services activity slowed slightly, with the business activity index edging down to 50.7, its lowest in two months.

Germany remained at the centre of the region’s industrial rebound, posting its third straight month of output growth on the back of solid manufacturing gains, although services growth there stayed muted. In France, the picture was more mixed: output contraction softened to its slowest pace in a year, but business confidence slipped into negative territory for the first time in nine months, highlighting ongoing uncertainty.

Despite the uptick in demand, the region’s export market remained under pressure. New export orders fell for the 29th consecutive month, with the latest decline the sharpest in five months. Domestically, companies reported enough spare capacity to reduce backlogs of work for a sixteenth straight month, while staffing levels rose modestly, extending a six-month hiring streak. Job creation was concentrated in services, while manufacturing employment continued to shrink, particularly in Germany.

Inflation pressures also intensified, with input costs rising at their fastest pace in five months. Manufacturing input prices moved higher for the first time since March, while services firms reported their steepest cost increases since March. Companies passed some of these costs on, leading to the sharpest increase in output prices in four months, with France and Germany posting more significant price growth than the rest of the bloc.

Supply chain pressures have also re-emerged. August saw the most pronounced deterioration in supplier performance since late 2022, as delivery times lengthened for the third consecutive month. Stock levels of both purchases and finished goods fell sharply, underscoring ongoing caution among manufacturers.

Overall sentiment across the Eurozone weakened for a second month, falling to a four-month low. Businesses in both sectors expressed more caution, reflecting geopolitical uncertainty, soft export markets, and concerns that inflationary pressures may complicate monetary policy.

UK services-led growth masks industrial weakness

The UK economy showed renewed momentum in August, with private sector output growth accelerating to its fastest pace in a year. The composite PMI climbed to 53.0 from 51.5 in July, signalling the fourth consecutive month of expansion. Services firms drove the upturn, with activity reaching a 12-month high, while manufacturing continued to lag, reporting its sharpest drop in new orders since April.

Domestic demand for services has strengthened, with some firms reporting rising export sales, while manufacturers continue to struggle with weaker global demand and intense pricing competition. Total new orders increased for the first time in two months, although the improvement was uneven, driven almost entirely by services.

Labour market conditions remained soft, with employment falling for the eleventh consecutive month. Companies cited restructuring, cost pressures, and cautious hiring policies, with cuts seen across both manufacturing and services. Backlogs of work fell at the fastest pace in three months, indicating that firms are still working through spare capacity despite the rise in new orders.

Cost inflation added another layer of complexity for UK businesses. Input prices rose at the fastest pace since May, with companies pointing to higher National Insurance contributions, food prices, and transportation costs. Freight delays linked to port disruptions in Asia added further pressure. Service firms reported their sharpest price hikes in three months, while manufacturers saw factory gate prices increase at their slowest pace since January, reflecting subdued demand.

Despite these challenges, sentiment improved, with overall business expectations reaching their highest level since October 2024. Service providers cited plans for product diversification, stronger domestic spending, and new investments, while manufacturers remained cautious about the global trade outlook, particularly given ongoing tariff tensions with the US.

US growth accelerates as inflation re-emerges

The US economy remained a clear outlier in August, with the flash composite PMI hitting 55.4, its highest reading since December and extending a 31-month streak of expansion. Manufacturing output surged to its fastest pace since May 2022, lifting the manufacturing PMI to 53.3 from 49.8 in July, while services growth remained robust despite easing slightly from July’s year-to-date high.

A resurgence in new orders, particularly for manufactured goods, was central to the US growth story. Domestic demand was the key driver, although exports also contributed, recording their strongest increase in over a year. Many companies reported renewed inventory building, with finished goods stocks rising at a rate not seen since records began in 2007, as businesses moved to secure supplies ahead of potential price rises and supply disruptions.

Inflationary pressures intensified sharply, with firms citing tariffs as the main cause of rising costs. Input prices for both goods and services climbed at their second-fastest rate since early 2023, while selling price inflation hit a three-year high. Goods price growth eased slightly, but service sector inflation was at its steepest since August 2022.

Labour market dynamics remained tight, with companies reporting the strongest job creation since January. Service-sector hiring was particularly robust, and factory employment grew at its fastest pace in more than three years. Rising backlogs of work, the largest build-up since May 2022, suggest further upward pressure on hiring and wages.

While optimism picked up slightly from July’s dip, sentiment remained well below levels seen earlier this year. Manufacturers were more upbeat, supported by policies that have favoured domestic production, but concerns persist over higher costs and geopolitical risks. Service providers were less confident, reflecting fears about the potential dampening effect of elevated inflation and interest rates.

Three trajectories

Taken together, the latest PMI releases underscore a diverging global landscape. The Eurozone’s rebound is encouraging but fragile, resting heavily on manufacturing strength while services show signs of softening. Germany remains pivotal, driving much of the industrial recovery, but French pessimism and sluggish export demand highlight the risks ahead. Rising inflationary pressures complicate this picture, potentially constraining the European Central Bank’s room for manoeuvre.

The UK’s growth story is narrowly concentrated in services, masking industrial weakness and a still-shaky labour market. Persistent inflation, driven by payroll taxes, food prices, and freight costs, adds pressure to an economy already grappling with trade frictions. The Bank of England faces a delicate balancing act as it weighs supporting growth against the risk of rekindling inflation.

The US continues to stand apart, combining robust growth, strong hiring, and rising inflation in a way that sets it on a different policy trajectory. Manufacturing strength is returning, bolstered by domestic demand and inventory building, while services remain resilient. However, tariff-related price pressures raise questions about the sustainability of this pace of expansion.

Navigating a patchwork recovery

August’s PMI data show a world economy that is far from synchronised. The Eurozone is tentatively recovering, but vulnerabilities in trade and confidence remain. The UK’s recovery is patchy, driven by services, with manufacturing still under strain. The US, meanwhile, is delivering strong growth but is reintroducing inflation risks that may challenge policymakers.

For corporate treasurers and CFOs, the numbers provide a stark reminder of the uneven playing field. While opportunities for growth exist, especially in the US, Europe’s manufacturing-led rebound and the UK’s services resilience are still fragile, and rising costs across all three regions point to a challenging operating environment in the months ahead.