A survey published on Tuesday indicated that business activity in the United Kingdom grew at its slowest rate in six months in March, as the conflict in the Middle East triggered the largest monthly acceleration in manufacturing input costs since 1992.
The Global Purchasing Managers' Index, released by Standard & Poor's, is the first major survey to reveal the impact of the US-Israeli war on Iran, which began on February 28, on British companies. These developments have heightened concerns about slowing growth and rising inflation, according to Reuters.
Details of the Event
The preliminary composite Purchasing Managers' Index, which covers both the manufacturing and non-commercial services sectors, fell to 51 points in March, down from 53.7 points in February, marking its highest level since August 2024. Chris Williamson, chief economist at Standard & Poor's Global Market Intelligence, confirmed that the war in the Middle East has negatively impacted the British economy, leading to a sharp slowdown in growth and a significant rise in inflation.
The index reading was below all expectations from an economist survey conducted by Reuters, but it remained above the 50 point threshold that separates growth from contraction, and was higher than some periods before Finance Minister Rachel Reeves' budget last November, when many companies feared higher taxes.
Context and Background
In a related context, a comparison with the Eurozone Purchasing Managers' Index showed a less severe slowdown, as the index dropped to 50.5 points in March from 51 points in February. With some US attacks on Iran pausing and President Trump announcing fruitful talks, British Prime Minister Keir Starmer stated that the government needs to plan on the basis that the conflict may continue for some time.
The Standard & Poor's Global input prices index for British manufacturers, which measures the speed of cost increases, surged to 70.2 points in March from 56 in February, marking the largest monthly increase since the British pound exited the European Exchange Rate Mechanism in 1992. Standard & Poor's noted that rising fuel, transport, and energy-intensive raw material costs were the main reasons behind this increase.
Consequences and Impact
Companies reported that they raised their prices at the fastest pace since April 2025, which has increased the Bank of England's dilemma regarding the need to raise interest rates to curb inflation amid an economic slowdown. The Bank of England had kept interest rates steady last week and announced its readiness to take further action if necessary, expecting inflation to rise to around 3.5% by mid-year, after previously expecting it to drop to around 2% in April.
The survey indicated that British companies' expectations for future production are the weakest since June 2025, while the employment rate has declined for the eighteenth consecutive month, marking the longest period of continuous decline since 2010. According to Williamson, companies blamed their business losses directly on events in the Middle East, whether through increasing customer aversion to risk, rising price pressures, higher interest rates, or disruptions in travel and supply chains.
Impact on the Arab Region
The Arab region is directly affected by the repercussions of the conflict in the Middle East, as rising production costs in Britain reflect on the prices of goods and services in Arab countries, increasing inflationary pressures. Additionally, the decline in business activity in Britain may impact exports and imports with Arab countries, negatively affecting the regional economy.
In conclusion, this survey highlights the importance of monitoring global economic developments and their impact on local markets, as geopolitical events play a crucial role in shaping the future of both the British and global economies.