In December 2024, mid-market firms achieved their fastest output growth in three months, with a Business Activity Index of 53.5. The service sector played a pivotal role in this rebound, offsetting a decline in manufacturing. However, employment dropped at the fastest rate in nearly four years due to cost pressures and softer demand.

SMEs experienced stagnant growth, with the Business Activity Index falling to 48.7 in December. Manufacturing was the hardest-hit sector, posting its steepest decline since May 2020, as new orders fell sharply. Service and construction sectors saw modest growth, but overall activity was subdued. Rising input costs, including wages and material prices, compounded challenges for SMEs.

The prioritisation of sustainability among SMEs reached its lowest point since tracking began in 2020, with only 32% citing green initiatives as a high priority for 2025. Rising costs, lack of sustainable suppliers, and regulatory uncertainty were key barriers. Recycling remained the top priority, while investment in sustainable product launches ranked lowest.

Despite headwinds, businesses remain cautiously optimistic about 2025, driven by expectations of stronger sales and improved economic conditions. However, concerns over rising employment costs, subdued demand, and uncertainty around government policies persist.

The report underscores the need for targeted support to address structural challenges and foster growth, particularly for SMEs and manufacturing sectors. Enhanced focus on sustainability, cost management, and workforce stability will be crucial to unlocking potential in 2025.

Robert Begbie, CEO of the NatWest Group Commercial and Institutional franchise, said: “Mid-market businesses, are an essential engine of UK economic growth. Despite making up just 0.5% of UK companies, they are responsible for more than a quarter of national turnover.

“With this new growth tracker monitoring their progress, we are now able to visualise the huge opportunities and challenges they face. For thirteen successive months these businesses have posted growth, but, like smaller businesses, they face rising business costs and an uncertain economic landscape. 

“As the UK’s biggest bank for business, we see first-hand the ingenuity and resilience of businesses of all sizes – and there is no ‘one size fits all’ approach. Given inflation and tax changes, managing costs and delivering efficiencies will be key for all businesses as they head in 2025, and as a bank we stand ready to support them every step of the way.”