Economist warns the longer the Iran war goes on for then ‘a recession looks likely’ – London Business News | Londonlovesbusiness.com

Activity in the UK’s dominant services sector slowed in March due to the impact of the conflict in the Middle East, which weighed on both business and consumer confidence and raised concerns about stagflation.

The S&P Global UK Services PMI, a key indicator, dropped to 50.5 in March, down from 53.9 in February—its lowest level in 11 months —although it remains slightly above the growth threshold.

Businesses reported that uncertainty surrounding the US–Israel conflict with Iran had led to reduced spending and postponed investment decisions.

There was also a decline in export demand, with new orders from abroad falling at the fastest rate since April of the previous year.

Additionally, rising energy costs, caused by disruptions to infrastructure and shipping routes in the Middle East, added further pressure. Companies noted that higher fuel prices were increasing transport costs and raw material prices, leading to a renewed surge in cost inflation.

Tim Moore, the economics director at S&P Global Market Intelligence, remarked that the sector had experienced a “marked slowdown in output growth,” as geopolitical tensions heightened risk aversion among clients.

This data will raise concerns that the UK economy may face a period of weak growth coupled with persistent inflation—a situation that policymakers have struggled to manage.

“Overall input cost inflation has accelerated sharply since February and was the strongest for 11 months, which was overwhelmingly linked to rising fuel and transportation bills,” Moore said.

“Many firms also noted that suppliers had sought to pass on higher prices paid for energy, raw materials and shipping.”

Thomas Pugh, chief economist at RSM UK, said: “The inevitable conclusion from this morning’s final PMI numbers for March is that the UK is in for another bout of stagflation, even if the conflict ends soon.

“If it drags on longer, a recession looks likely.

“We now expect the economy to stagnate for the rest of this year as higher energy prices and tighter financial conditions cause disposable income to shrink.

“Admittedly, the household saving rate is high entering the crisis, which would allow households to cushion the blow to disposable incomes by saving less, and government support may also reduce the impact on GDP (gross domestic product).”