War in the Middle East has stalled growth across the UK’s private sector as companies pin “lost” business on soaring energy prices, longer wait times for raw materials, and more cautious customers, according to a new survey.
Manufacturers have particularly come under pressure this month from a steep increase in costs including fuel, transportation and raw materials.
The S&P Global flash UK composite purchasing managers’ index (PMI), which is watched closely by economists, recorded a reading of 51.0 in March, down from 53.7 in February.
Activity was nevertheless in growth territory, which is signified by any score above the 50.0 threshold.
However, the latest score marked a six-month low, and businesses blamed the US-Israel war with Iran for souring customer demand, pushing up prices and disrupting their global supply chains.
Respondents said worries about the conflict had dampened consumer confidence which was pulling back spending and resulting in less new work for firms.
Furthermore, around a quarter of UK manufacturers reported longer delivery times from suppliers in March, with some firms saying that shipping had been rerouted from Asia via the Cape of Good Hope amid disruption in the Strait of Hormuz.
Others also said that production pauses at petrochemical suppliers in the Middle East – who use crude oil and natural gas to make raw materials – had led to longer wait times.
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.”
Nearly half of goods producers surveyed reported an increase in their input costs this month, referring to expenses such as raw materials, energy, machinery and labour needed to do make things.
The acceleration in price pressures between February and March was the largest recorded since 1992, the figures showed.
Mr Williamson added that the full impact on the economy “depends not just on the duration of the war but also the length of disruptions to energy markets and shipping”, but that the latest figures show that risks to economic growth and inflation had “already materialised”.
