Conflict Drives UK Manufacturers' Steepest Cost Surge Since 1992

Manufacturers in the UK 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.

The PMI figure for the UK manufacturing sector dropped to 49.2 in March, down from 51.7 in February, indicating a contraction in activity. This was the first time the index has fallen below the 50.0 no-change mark since May 2020.

The survey also revealed that input cost inflation accelerated to its fastest rate since the aftermath of Black Wednesday in 1992, when the UK was forced to withdraw from the European Exchange Rate Mechanism (ERM), leading to a plunge in the value of the pound and a spike in inflation.

The PMI figure for the UK's dominant services sector also declined, dropping to 52.0 in March from 53.5 the previous month, indicating a marked slowdown in growth.

Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiles the PMI survey, said the data pointed to the UK economy losing momentum in the face of surging inflation and rising uncertainty stemming from the Middle East conflict.

"The survey data suggest the UK economy is losing momentum as rising prices and heightened uncertainty linked to the Middle East conflict take their toll," Williamson said.

"Manufacturing is now contracting, and growth in the much larger services sector has slowed sharply, as both rising costs and weakening demand start to bite."

He added that the PMI data pointed to the UK economy growing by around 0.2% in the first quarter of 2026, down from 0.7% in the final three months of 2025.

The PMI figures come as the UK chancellor, Jeremy Hunt, prepares to deliver his spring budget on Wednesday, with rising inflation and slowing growth likely to be key concerns.

Hunt has warned that the UK faces a prolonged period of high inflation and lower growth as a result of the Middle East conflict and other global economic factors.