UK manufacturers are facing their fastest rise in production costs since the aftermath of Black Wednesday, as escalating energy prices linked to the Middle East conflict push inflationary pressures across the economy. Fresh data from S&P Global shows that manufacturing input costs jumped sharply in March, while overall private sector growth slowed to a six-month low.
The Purchasing Managers’ Index (PMI) for input prices rose to 70.2 in March, up from 56 in February, marking the steepest increase since October 1992, when the pound’s collapse sent import costs soaring. Analysts said the surge is largely driven by higher oil and gas prices following disruptions to key shipping routes, including the Strait of Hormuz, which has constrained global fuel and raw material supply. Brent crude has climbed more than 40 per cent since late February, reaching around $100 a barrel, adding pressure to energy-intensive sectors such as manufacturing and food production.
The composite PMI, which tracks activity across manufacturing and services, fell to 51 in March from 53.7 in February. While the figure remains above the 50 mark that separates growth from contraction, it signals a marked slowdown, with manufacturing edging down to 51.4 and services dropping more sharply to 51.2.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said companies are increasingly attributing lost business directly to the conflict in the Middle East. “Output growth has slowed to a crawl as firms face heightened risk aversion among customers, rising costs, higher interest rates and ongoing supply chain disruption,” he said.
Economists warned that the sharp increase in input costs could feed into a renewed inflation surge, potentially pushing consumer price growth above 5 per cent later this year if energy prices remain elevated. Paul Dales of Capital Economics said the scale and speed of the change had surprised analysts, even with expectations of an energy shock.
Financial markets have already reacted, with traders revising interest rate expectations. The Bank of England’s current base rate of 3.75 per cent is now widely expected to rise multiple times this year to counter inflationary pressures. Higher borrowing costs could further strain businesses and households, adding to the challenges of sustaining economic growth.
The PMI also highlighted weakening business sentiment, which fell to a nine-month low, and continuing job cuts as firms respond to uncertainty. Global data shows similar slowdowns in the United States and eurozone, suggesting that rising energy costs are exerting broad international pressure.
Pantheon Macroeconomics estimates UK GDP growth at just 0.1 per cent for the first quarter of 2026, underscoring the fragile state of the recovery. With production costs rising, demand slowing, and borrowing costs tightening, businesses face the challenge of managing expenses without losing competitiveness, while households may experience renewed pressure on living standards.
The data suggests a familiar but concerning scenario: weak economic growth colliding with rising prices, as energy shocks ripple through the UK economy.
