A recent survey indicates that growth in the UK's private sector stalled in the first month following the outbreak of conflict involving Iran, signaling a sudden loss of economic momentum and highlighting heightened "stagflation" risks. The S&P Global Purchasing Managers' Index (PMI) for March dropped to a six-month low of 50.3, down significantly from the previous reading of 53.7. The final figure was well below the earlier estimate of 51. Although the index remains above the 50-point threshold that theoretically indicates economic expansion, it now signals near-stagnation in practice.

The services PMI recorded its slowest growth in 11 months, alongside the fastest rise in costs, aligning with the deteriorating trend shown in last week's manufacturing PMI. Businesses reported that both consumers and companies have tightened spending due to the Middle East conflict. Economists noted that UK economic growth had already weakened to 0.1% in the fourth quarter of 2025, and the latest PMI data further raises the risk of recession.

Thomas Pugh, Chief Economist at RSM UK, stated clearly: "The final March PMI data released this morning clearly points to a new round of stagflation for the UK, even if the conflict ends quickly. If the conflict persists, recession risks will increase significantly." Earlier this year, the UK economy showed steady but subdued momentum. However, attacks by the US and Israel on Iran triggered a surge in energy prices and a collapse in market confidence, completely disrupting this trajectory.

In recent weeks, multiple forecasting institutions have substantially lowered growth expectations for the UK, while markets are betting that the Bank of England will raise interest rates to curb inflationary threats. The survey revealed that new orders in the services sector fell at the fastest pace since last July, while export sales declined for the first time this year. Specifically, 40% of service sector firms reported rising costs in March, with only 2% experiencing a decrease.

S&P analysis highlighted that businesses are facing dual pressures: rapid wage growth on one side, and suppliers attempting to pass on increases in raw material costs—such as fertilizers, chemicals, and plastics—as well as energy and transportation expenses to consumers due to the war. Tim Moore, Economics Director at S&P Global Market Intelligence, emphasized: "Stagflation risks have intensified further. The final services PMI data show that both slowing growth and cost pressures exceeded initial flash estimates. Many businesses also mentioned that suppliers are trying to pass on rising costs for energy, raw materials, and transportation."