The uncomfortable echoes of 2022 are growing louder. Britain’s private sector expanded at its weakest pace in six months during March, with the final composite purchasing managers’ index slipping to just 50.3, barely a whisker above the line that separates growth from contraction and well below the 51 reading analysts had pencilled in.
For the thousands of small and medium-sized businesses that form the backbone of the UK economy, the message from the latest S&P Global data is stark: costs are rising sharply while customer demand is falling away. It is, in short, the textbook definition of stagflation, and it is back.
The principal culprit is the war in the Middle East. Five weeks of US and Israeli strikes against Iran have sent oil and gas prices surging, with the effective closure of the Strait of Hormuz, through which roughly a fifth of the world’s oil previously flowed, choking off a vital supply artery. The knock-on effect for British firms has been immediate and painful: material costs across the private sector rose at their fastest rate since February 2023.
Manufacturing businesses bore the sharpest pain, recording their steepest month-on-month rise in cost inflation since Black Wednesday in 1992. The manufacturing PMI edged down to 51 from 51.7 in February, still in expansion territory, but only just, and with margins under severe strain.
Yet it is the services sector, responsible for roughly 80 per cent of British GDP, that should concern business owners most. Services activity slumped to an 11-month low of 50.5, a dramatic fall from 53.9 the previous month and a significant downgrade from the earlier flash estimate. New business among services firms fell for the first time since November 2025, a worrying sign for any SME dependent on a healthy domestic order book.
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