UK business growth slows as Iran war pushes up costs

24th Mar 2026 10:06

(Sharecast News) - UK business growth slowed in March as costs rose at the fastest pace since the sterling crisis in 1992 due to the war in Iran, according to a survey released on Tuesday.

The S&P Global flash composite purchasing managers' index fell to 51.0 from 53.7 in February. The reading was above the 50.0 mark that separates contraction from expansion for the 11th month in a row, but pointed to the slowest output expansion since last September.

It was also below economists' expectations for a reading of 52.8.

The manufacturing output index fell to 50.1 in March from 52.5 the month before, hitting a six-month low. The services PMI business activity index printed at 51.2, down from February's 53.9 and also a six-month low.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher.

"Output growth across manufacturing and services has slowed to a crawl as companies blamed lost business directly on the events in the Middle East, whether through heightened risk aversion among customers, surging price pressures, higher interest rates, or via travel and supply chain disruptions.

"Inflationary pressures have surged higher on the back of rising energy prices and fractured supply chains. The acceleration in cost growth in the manufacturing sector was especially severe, being the sharpest since the depreciation of sterling following Black Wednesday in 1992."

Williamson said the full impact on inflation and economic growth depends on both the duration of the war and the length of disruptions to energy markets and shipping, "though March's PMI numbers clearly underscore how downside growth risks and upside inflation risks have already materialised".

"The Bank of England faces a challenging period where it will need to balance these growth and inflation risks when setting policy, seeking to dampen the potential for the inflation spike to become more engrained while ensuring a hawkish interest rate outlook does not exacerbate downturn risks."

Jake Finney, senior economist at PwC, said the latest PMI data presents a "conundrum" for the Bank of England.

"The conflict is pushing up prices while also weighing on demand. The key judgement for Monetary Policy Committee members will be how long the conflict is likely to last and whether higher energy prices will trigger a broader resurgence in inflation pressures.

"With the labour market now softer than it was at the start of the 2022 inflation spike, the risk of second-round effects is lower. Even so, the prospect of near-term rate cuts has all but faded."