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The UK’s manufacturers have suffered the sharpest one-month acceleration in costs since the aftermath of Black Wednesday in 1992 as conflict in the Middle East has driven up oil prices, new survey evidence shows.
The closely watched purchasing managers’ index (PMI) lays bare the impact of the conflict on the UK economy, with growth slowing sharply across manufacturing and services and costs rising.
Chris Williamson, the chief business economist at S&P Global Market Intelligence, which collects the data, said: “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.”
In another indicator of economic weakness, the CBI’s survey of the retail sector said March has recorded the fastest annual decline in sales volumes since April 2020, when the Covid lockdown was in force, though it did not explicitly blame the war in the Middle East.
The balance of retailers reporting rising sales was -52% in March, down from an already weak -43% in February.
The business lobby group’s lead economist, Martin Sartorius, said: “Retailers report that weak economic conditions continue to weigh on household spending, with subdued activity also evident across the broader distribution sector.”
According to the PMI survey, cost inflation in manufacturing jumped to its highest level since October 2022, marking the largest month-on-month change since the fallout from Black Wednesday in 1992.
The cost index, which measures manufacturers’ expectations of rising prices, was 14 points higher in March than a month earlier, S&P said, against 17 points in October 1992.
Sterling plunged after Black Wednesday, driving up the cost of imports, after the then government ratcheted up interest rates in a failed attempt to remain inside the European exchange rate mechanism.
S&P said the rapid increases in costs mainly related to fuel, transportation and energy-intensive raw materials.
The composite PMI index, covering services and manufacturing, stood at 51, suggested the economy was still expanding in March (50 marks the breakeven between growth and contraction) – but at a sharply slower pace than the 53.7 seen in February.
Emily Sawicz, a director and industrials senior analyst at RSM UK, said: “Despite some resilience, geopolitical tensions remain a key concern for UK manufacturers – underscoring that conditions remain highly uncertain. The recovery many hoped to see take hold in 2026 now appears likely to be delayed at best, as rising energy costs and persistent inflation risks threaten to slow momentum.
“Should these pressures intensify, the sector’s fragile recovery could even slip back into decline later in the year.”
Looking ahead, companies reported a decline in new orders, and falling export sales – including the fastest decline in new orders from abroad since April last year. “Anecdotal evidence pointed to the postponement of new projects in the Middle East and the impact of reduced international travel,” S&P said.
PwC’s senior economist, Jake Finney, said the survey underlined the challenges for the Bank of England in setting interest rates in the coming months.
“The conflict is pushing up prices while also weighing on demand. The key judgment for monetary policy committee members will be how long the conflict is likely to last and whether higher energy prices will trigger a broader resurgence in inflation pressures,” he said.
Now in its fourth week, the US-Israel war on Iran has prompted a surge in global oil and gas prices and disruptions to supply chains for a range of different products due to destruction of infrastructure in the Gulf, and the effective closure of the strait of Hormuz.
The chancellor, Rachel Reeves, will set out in the House of Commons on Tuesday the government’s thinking about how it might cushion the blow for consumers if the disruptions prove prolonged.
