UK Business Growth Weakest Since September As Iran War Drives Up Costs, Survey Shows

LONDON, March 24 (Reuters) - British business activity grew at the slowest pace in six months in March as conflict in the Middle East triggered the biggest month-on-month acceleration in manufacturers' input costs since 1992, according to a survey released on Tuesday.

The S&P Global Purchasing Managers' Index is the first major survey to show the impact on British businesses from the U.S.-Israeli war on Iran, which started on February 28, and is likely to increase concerns about weak growth alongside high inflation.

The preliminary composite Purchasing Managers' Index, covering manufacturers and non-retail services businesses, sank to 51.0 in March from 53.7 in February which was the joint-highest since August 2024.

"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.

The survey's headline reading was below all forecasts in a Reuters poll of economists, though above the 50-level that divides growth from contraction.

It was also higher than it was in some of the run-up to finance minister Rachel Reeves' budget in November when many businesses feared they would be hit with higher taxes.

The equivalent PMI for the euro zone fell much less sharply, dropping to 50.5 in March from 51.0 in February.

Although President Donald Trump paused some attacks on Iran on Monday and said there had been productive talks, British Prime Minister Keir Starmer said the government needed to plan on the basis that the conflict could continue for some time.

FACTORIES' COSTS ACCELERATE BY MOST SINCE 1992

S&P Global's gauge of input prices for British manufacturers - which measures how fast costs are rising - jumped to 70.2 in March from 56.0 in February, the biggest leap from one month to the next since sterling tumbled out of Europe's Exchange Rate Mechanism in 1992.

Higher prices for fuel, transport and energy-intensive raw materials were the main reasons for the increase, S&P said.

Businesses said they raised their prices at the fastest rate since April 2025 - sharpening the dilemma for the Bank of England on whether it needs to raise interest rates to tame inflation risks at a time when the economy is slowing.

Last week the BoE kept rates on hold and said it was ready to take further action if needed as it forecast inflation would rise toward 3.5% in the middle of this year. Previously, the BoE had forecast inflation would fall to around 2% in April.

The PMI survey showed British businesses' expectations for future output were the weakest since June 2025. Employment fell for the 18th month in a row, the longest unbroken run of declines since 2010.

"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," Williamson said.