LONDON, March 24 - British private-sector activity lost momentum in March, with S&P Global's preliminary Purchasing Managers' Index (PMI) showing the slowest expansion in six months as the conflict in the Middle East fed through to sharper cost pressures for manufacturers.
The composite PMI, which combines readings for manufacturing and non-retail services firms, dropped to 51.0 in March from 53.7 in February. Although the reading remained above the 50 threshold that separates growth from contraction, it marked a notable deceleration from the joint-highest level recorded in February.
S&P Global said the survey is the first of the major business gauges to capture the impact on UK firms from the U.S.-Israeli war on Iran that began on February 28. The survey showed the conflict was already affecting companies through higher costs and reduced demand in some areas.
Costs leap for manufacturers
S&P Global's measure of input prices for British manufacturers surged to 70.2 in March from 56.0 in February. The month-on-month increase was the largest recorded since 1992, when sterling fell out of Europe’s Exchange Rate Mechanism, according to the survey. Higher prices for fuel, transport and energy-intensive raw materials were cited by respondents as the main contributors to the jump.
Those rising costs were passed through to customers, with firms reporting that they raised their selling prices at the fastest pace since April 2025. That acceleration in price-setting compounds the policy dilemma facing the Bank of England: inflationary pressures are strengthening even as the economy cools.
Last week the Bank of England left interest rates unchanged but signalled it remained prepared to tighten policy further if necessary. The BoE also revised its inflation outlook, saying it expected inflation to rise toward 3.5% in the middle of this year, compared with an earlier projection that inflation would fall to around 2% in April.
Demand, employment and expectations
The PMI also reflected softer demand conditions. Business expectations for future output weakened to their lowest level since June 2025, the survey showed. Meanwhile, employment in the surveyed sectors fell for an 18th consecutive month - the longest unbroken run of job declines since 2010.
"The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. He noted firms directly attributed lost business to the events in the Middle East through several channels, including heightened customer risk aversion, surging price pressures, higher interest rates, and disruptions to travel and supply chains.
Respondents indicated that the conflict was affecting both demand and costs, a combination that makes the outlook more uncertain for businesses and policymakers alike.
Comparisons and context
The equivalent headline PMI for the euro zone eased only slightly, falling to 50.5 in March from 51.0 in February, a smaller decline than seen in Britain. The UK headline reading was also below all forecasts in a Reuters poll of economists, though it remained above the 50 growth threshold and higher than readings seen in the lead-up to the finance minister's budget in November, when firms feared higher taxes.
Political leaders in both the UK and abroad were responding to the uncertain international backdrop. Although President Donald Trump paused some attacks on Iran on Monday and said there had been productive talks, British Prime Minister Keir Starmer said planning should assume the conflict could persist for some time.
Implications
The combination of slowing activity, rising cost pressures and weakening business sentiment raises questions about near-term growth and the path for monetary policy. Firms' rapid pass-through of higher input costs into selling prices sharpens the inflation risk, while continued falls in employment reflect fragile demand conditions in parts of the economy.
Key data points from the survey
- Composite PMI: 51.0 in March, down from 53.7 in February.
- Manufacturers' input price index: 70.2 in March, up from 56.0 in February - the largest monthly rise since 1992.
- Euro zone PMI: 50.5 in March, down from 51.0 in February.
- Employment: Declined for the 18th straight month, the longest continuous fall since 2010.