(April 7): Britain’s private sector growth ground to a halt in the first month of the Iran war, according to a survey that pointed to a sudden loss in momentum and the threat of "stagflation".
S&P Global’s purchasing managers’ index dropped to a six-month low of 50.3 in March, signalling a stagnant economy and down from 53.7 previously. The final reading was much worse than the 51 in the flash estimate, with any score above 50 pointing to growth.
It was the service sector’s weakest growth and fastest rise in input prices for 11 months, matching the worsening picture in last week’s manufacturing PMI. Firms reported that consumers and businesses have tapped the brakes on spending due to the conflict in the Middle East.
With UK quarterly growth already tepid at 0.1% at the end of 2025, economists warned of a rising risk of recession following the PMIs.
“The inevitable conclusion from this morning’s final PMI numbers for March is that the UK is in for another bout of stagflation, even if the conflict ends soon,” said Thomas Pugh, chief economist at RSM UK. “If it drags on longer, a recession looks likely.”
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The UK economy started the year with a steady if unspectacular outlook but this has been derailed by the US and Israel’s attack on Iran, sending energy prices spiralling higher and confidence plunging. Forecasters have slashed UK growth forecasts in recent weeks and markets are betting on the Bank of England raising interest rates to tame the threat of inflation.
Services firms saw new work fall at the fastest pace since July, the survey said, and export sales declined for the first time this year.
Four in 10 services firms said their costs rose in March, versus just 2% who saw a decline. S&P said businesses were facing high wage growth and efforts by suppliers to pass on higher raw material prices due to the war, including for fertilisers, chemicals and plastics.
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“Stagflation risks appear to have increased, with the final Services PMI data signalling slower growth and higher cost pressures than the earlier ‘flash’ estimates”, said Tim Moore, economics director at S&P Global Market Intelligence. “Many firms also noted that suppliers had sought to pass on higher prices paid for energy, raw materials and shipping.”
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