British business activity slows as conflict raises costs

Business activity in the United Kingdom expanded at its slowest rate in six months during March. According to a recent survey by S&P Global Inc., the slowdown was primarily driven by escalating conflict in the Middle East, which triggered a historic surge in manufacturing input costs. The preliminary composite Purchasing Managers Index (PMI), which tracks both the manufacturing and services sectors, fell to 51.0 in March from 53.7 in February. While the reading remains above the 50.0 threshold that separates growth from contraction, it fell short of all economist forecasts. This decline marks the first significant data point illustrating the economic fallout from the conflict involving the United States, Israel, and Iran, which intensified in late February. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the geopolitical situation has fundamentally altered the economic trajectory for the month. > The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher. The survey highlighted a dramatic spike in input prices for manufacturers, with the gauge jumping from 56.0 in February to 70.2 in March. This represents the sharpest month-on-month acceleration in costs since 1992. Businesses attributed the rise to the soaring costs of fuel, transport, and energy-intensive raw materials. In response, firms raised their own prices at the fastest pace since April 2025, complicating the Bank of England's strategy for managing inflation. The Bank of England recently held interest rates steady but warned that inflation could climb toward 3.5% by mid-year, a significant shift from previous expectations that it would fall to 2% by April. Meanwhile, the labor market continues to show signs of strain, with employment levels falling for the 18th consecutive month, the longest period of decline since 2010. Williamson further explained the direct link between the conflict and business performance. > 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. While some diplomatic efforts have been noted, Prime Minister Keir Starmer has advised that the government must prepare for a prolonged period of instability. The PMI for the euro zone also saw a decline, though it was less severe than the drop observed in the British market.