UK manufacturers hit by biggest surge in cost inflation since Black Wednesday
Newsflash: UK manufacturers have been hit by the biggest jump in cost inflation since Black Wednesday more than 30 years ago, as the Iran war drives up prices and hits growth.
Data firm S&P Gobal reports there was a “marked slowdown” in business activity growth during March as the war in the Middle East hit customer demand, pushed up input prices and disrupted supply chains.
Its latest poll of purchasing managers has also found that growth across the UK private sector has fallen to a six-month low this month.
Business optimism has fallen to the lowest level since June 2025, as firms are hit by rising cost pressures due to higher costs for fuel, transportation and energy-intensive raw materials.
This pulled the Flash UK PMI Composite Output Index down to 51.0, from 53.7. in February. That’s the lowest since September 2025, and close to the 50-point mark showing stagnation.
Manufacturers reported the biggest month-on-month acceleration in input price inflation since October 1992. That’s the month after Black Wednesday when currency speculators beat the Bank of England, forcing the UK out of the European exchange rate mechanism and triggering a slump in the value of the pound (making imports more expensive).
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher.
Output growth across manufacturing and services has slowed to a crawl as companies blamed lost business directly on the events in the Middle East, whether through heightened risk aversion among customers, surging price pressures, higher interest rates, or via travel and supply chain disruptions.
Inflationary pressures have surged higher on the back of rising energy prices and fractured supply chains. The acceleration in cost growth in the manufacturing sector was especially severe, being the sharpest since the depreciation of sterling following Black Wednesday in 1992.
The full impact on inflation and economic growth depends not just on the duration of the war but also the length of disruptions to energy markets and shipping, though March’s PMI numbers clearly underscore how downside growth risks and upside inflation risks have already materialised.
Key events
European markets now in the red
European stock markets have now moved lower, as investors await the open of Wall Street in a few minutes time.
With anxiety over the Middle East conflict still high, shares are lower in London, Paris and Frankfurt.
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UK’s FTSE 100: down 0.35%
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Germany’s DAX: down 1.25%
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France’s CAC 40: down 0.7%
Markets remain “sceptical and headline driven”, according to Fawad Razaqzada, market analyst at Forex.com, who explains:
Markets remain firmly at the mercy of geopolitical headlines, and Trump’s constant social posts delivering mixed messages.
The US dollar, stock indices, gold and crude oil are all continuing to swing on every update tied to the Middle East conflict. Traders are hanging on any signals around whether ceasefire talks are even remotely on the table. Until there’s something concrete, it’s hard to see risk appetite improving in any meaningful way.
UK nuclear power plant to face extra scrutiny over safety standards
Jillian Ambrose
A 42-year-old nuclear power plant in Hartlepool will face extra scrutiny from the industry’s regulator after it failed to meet a safety improvement plan.
The Office for Nuclear Regulation (ONR) said the site had been placed into the “significantly-enhanced regulatory attention” category which will mean extra site visits and inspections to ensure it is meeting safety standards.
The ONR said the EDF-owned plant remained safe to continue to operate, but the decision to increase scrutiny was taken after visits “identified areas where safety improvements are required”.
A spokesperson for EDF declined to comment on the specific incidents which have prompted the nuclear regulator to tighten its oversight of the facility, which has generated electricity since August 1983.
The ONR said its concerns relate to “conventional health and safety, the number of site incidents and in the delivery of agreed performance improvements”.
Dan Hasted, an ONR director, said:
“EDF is committed to delivering a range of improvements at Hartlepool, and we are overseeing this.”
The regulator agreed an improvement plan with EDF last year but the ONR is understood to want a more focused attention on the site’s efforts to improve its safety performance.
An EDF spokesperson said:
“What this change means is that the regulator will visit the site more regularly and carry out additional inspections. We are committed to working with the regulator to ensure it is content that improvements required are being implemented.”
“Hartlepool power station has been a vital part of the Teesside community for more than 40 years and it is important to note the ONR has been clear that the site continues to be safe to operate.”
Details of the increased scrutiny emerged as it was reported that EDF will face an EU investigation into a state aid package for building six nuclear power plants.
The European Commission – the EU competition enforcer – is expected to open an investigation next month over concerns the support will reinforce the state-owned French utility’s market dominance, according to the Reuters news agency.
The scheme, worth tens of billions of euros, is central to France’s plan to renew its ageing nuclear fleet, and would add about 10 gigawatts of capacity, with the first reactor due to be commissioned in 2038. A lengthy EU investigation would risk delaying that timeline.
Back in parliament, Rachel Reeves has told MPs that contingency planning was under way for energy bill support “for those who need it most”, and warned that the economic challenges from the Iran war may be “significant”.
No details about what support might be delivered, but the chancellor did criticise the price cap implemented in 2022 for cutting bills for everyone, including the wealthiest.
Reeves also told MPs she will hold meetings with supermarkets and banks to discuss how they can support their customers, and was giving the Competition and Markets Authority new powers to deal with price gouging.
Politics Live has more details:
Precious metal prices are dropping, as the US dollar strengthens.
Spot gold is down 0.8% at $4,371 an ounce, on track for its lowest close since the start of the year.
Platinum is down over 3% at $1,389 an ounce.
Reeves giving economic update on Middle East
Over in parliament, chancellor Rachel Reeves is starting to give an economic update on the crisis in the Middle East.
She’s expected to outline what the government is doing, and may do in future, in response to the soaring global energy prices caused by the Iran war.
Reeves starts by paying tribute to the armed forces, before telling MPs that the price of oil and gas have remained high since she last addressed the House of Commons. She also cites the Bank of England’s forecast, last week, that inflation could rise to 3.5% later this year.
Our Politics Live blog has all the details:
The markets are dubious about Donald Trump’s latest “TACO helping”, reports Chris Beauchamp, chief analyst at IG Group.
After a morning of modest rises on many European stock markets (but losses in Germany), Beauchamp says:
“Donald Trump has managed to swerve disaster multiple times during his presidential terms, but investors aren’t sure he can get away with it this time.
The 5-day pause seems designed purely to allow new US forces to arrive in theatre, and reports of an attack on gas infrastructure in Iran overnight remind us that the war is still going. Hormuz is still closed of course, piling on more pressure both on the US president and the global economy. And there is no guarantee that any talks will lead to progress. For the moment it looks like most are just standing aside to see what happens, or doesn’t happen, next.”
This morning’s UK PMI report is an early sign of the economic damage the Iran war is causing, says Matt Swannell, chief economic advisor to the EY ITEM Club:
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The conflict in the Middle East will weigh on the UK’s growth outlook, with March’s flash Purchasing Managers’ Index (PMI) already showing the first signs of the impact on business sentiment. Squeezed real incomes, supply side disruption and tighter financial conditions will all prove headwinds to growth over the coming year.
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Businesses are already reporting a sharp rise in input prices, justifying the Monetary Policy Committee’s (MPC) shift to a ‘wait and see’ approach to setting interest rates at its March meeting. With disruption expected to be prolonged, a sustained hold in Bank Rate appears likely.
UK retail sales tumble in March by most since Covid lockdown in 2020
Another blow! British retail sales have tumbled this month by the most since April 2020, when the economy was locked down in the Covid-19 pandemic.
The CBI’s latest ‘distributive trades’ survey has found that retail sales volumes dropped at a rapid pace in the year to March, the fastest rate in almost six years.
The survey found that 66% of retailers surveyed reported a fall in sales volumes this month, with just 13% reporting a rise, showing the biggest drop in sales volumes since April 2020.
Sales are expected to decline at a broadly similar pace next month, according to the poll which was conducted between 25 February and 13 March.
Retail sales volumes dropped at a rapid pace in the year to March, marking the quickest decline in nearly six years, according to the latest CBI Distributive Trades Survey. The decline is set to continue at a similarly sharp rate next month. pic.twitter.com/VrCuv62Rxp
— CBI Economics (@CBI_Economics) March 24, 2026
Retailers judged March’s sales to be “poor” for the time of year, to a greater extent than last month. April’s sales are set to fall short of seasonal norms, though to a slightly lesser degree. pic.twitter.com/4OD8Dilk2K
— CBI Economics (@CBI_Economics) March 24, 2026
The CBI also found:
Martin Sartorius, lead economist at the CBI, says:
“Momentum in the retail sector remained poor in March, with annual sales volumes falling sharply and no signs of an imminent recovery. Retailers report that weak economic conditions continue to weigh on household spending, with subdued activity also evident across the broader distribution sector.
“Steps taken by the government last week to address youth unemployment challenges – including launching foundation apprenticeships in hospitality and retail – are welcome moves to mitigate rising employment costs. However, more must be done to lower the cost of doing business, including securing workable outcomes on the Employment Rights Act and delivering a simpler, more competitive tax system. The conflict in the Middle East – which risks fuelling price pressures and squeezing household budgets – underscores the need for the government to take further action to lower the cost of doing business for distribution firms.”
UK sells 10-year gilt with highest yield since 2008
The UK has successfully sold more than £2bn of government bonds this morning, but it paid a high price due to the turmoil from the Iran war.
Britain sold £2.25bn of 10-year government bonds today; the auction saw strong demand, with investors submitting bids for 3.5 times as much debt as was available.
But despite that demand, the debt was sold at an average yield of 4.911%, the highest rate for any 10-year bond since 2008.
That follows the jump in UK bond yields in the markets this month, where 10-year gilt yields hit the highest level since 008 yesterday, as investors buy and sell debt from each other.
There has been a “marked decline” in business optimism across both the UK manufacturing and service sectors this month, today’s poll of purchasing managers shows.
S&P Global says:
Geopolitical risks due to the war in the Middle East were widely cited as weighing on business confidence, alongside concerns about the cost of living and weak domestic economic prospects.
Gas prices down 5%
In a boost to UK businesses and consumers, wholesale gas prices are dropping this morning.
The month-ahead UK gas contract has fallen by 5% this morning to 136.25p a therm, adding to yesterday’s losses.
Supply chain experts are warning that disruption from the Middle East conflict won’t end quickly, even if the crisis de-escalates.
Jill Anstey, associate director of sea freight at Baxter Freight, explains
“Even if the Strait of Hormuz were to reopen, shipping lines would only resume using the route once they are satisfied that conditions are stable and secure. Recent experience in the Suez Canal demonstrated that carriers will avoid a passage when they perceive the operational risks to be too high, even if it remains officially open.
Jump in input costs is “conundrum for the Bank of England”
The surge in UK input costs this month is a headache for the Bank of England, as it tries to weigh up whether to raise interest rates to fight inflation and risk damaging the economy.
Jake Finney, senior economist at PwC, says:
“After a strong start to the year, UK private sector growth slowed considerably in March as events in the Middle East clouded the economic outlook. Demand has weakened, cost pressures have picked up, and the pace of job cuts has accelerated.
“This presents a conundrum for the Bank of England. The conflict is pushing up prices while also weighing on demand. The key judgement for Monetary Policy Committee members will be how long the conflict is likely to last and whether higher energy prices will trigger a broader resurgence in inflation pressures. With the labour market now softer than it was at the start of the 2022 inflation spike, the risk of second-round effects is lower. Even so, the prospect of near-term rate cuts has all but faded.”
The money markets are now indicating the Bank will raise interest rates by 65 basis points (0.65 percentage points) by December, indicating that it would make at least two quarter-point rate rises this year.
Some economists, though, predict it will leave rates on hold, at 3.75%, this year….
UK companies have also started passing on higher costs onto their customers.
This morning’s PMI report explains:
Private sector firms recorded a sharp increase in their average output charges in March, with manufacturers signalling a particularly steep acceleration since the previous month.
The latest rise in output charges was the fastest since April 2025. Survey respondents overwhelmingly commented on fuel surcharges and the need to pass on higher raw material prices to customers.
Chart: How factory input cost inflation jumped
This chart shows how UK factory input cost inflation rose by the most since 1992:
S&P Global explains:
Goods producers signalled a rapid increase in purchasing prices during March. Around 47% of the survey panel reported a rise in their input costs, while only 2% reported a decline.
This pointed to the sharpest rate of input price inflation in the manufacturing sector for nearly three-anda-half years. Moreover, the acceleration in price pressures since February was the largest seen for over three decades
Here’s a reminder of the Black Wednesday turmoil:
UK manufacturers hit by biggest surge in cost inflation since Black Wednesday
Newsflash: UK manufacturers have been hit by the biggest jump in cost inflation since Black Wednesday more than 30 years ago, as the Iran war drives up prices and hits growth.
Data firm S&P Gobal reports there was a “marked slowdown” in business activity growth during March as the war in the Middle East hit customer demand, pushed up input prices and disrupted supply chains.
Its latest poll of purchasing managers has also found that growth across the UK private sector has fallen to a six-month low this month.
Business optimism has fallen to the lowest level since June 2025, as firms are hit by rising cost pressures due to higher costs for fuel, transportation and energy-intensive raw materials.
This pulled the Flash UK PMI Composite Output Index down to 51.0, from 53.7. in February. That’s the lowest since September 2025, and close to the 50-point mark showing stagnation.
Manufacturers reported the biggest month-on-month acceleration in input price inflation since October 1992. That’s the month after Black Wednesday when currency speculators beat the Bank of England, forcing the UK out of the European exchange rate mechanism and triggering a slump in the value of the pound (making imports more expensive).
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher.
Output growth across manufacturing and services has slowed to a crawl as companies blamed lost business directly on the events in the Middle East, whether through heightened risk aversion among customers, surging price pressures, higher interest rates, or via travel and supply chain disruptions.
Inflationary pressures have surged higher on the back of rising energy prices and fractured supply chains. The acceleration in cost growth in the manufacturing sector was especially severe, being the sharpest since the depreciation of sterling following Black Wednesday in 1992.
The full impact on inflation and economic growth depends not just on the duration of the war but also the length of disruptions to energy markets and shipping, though March’s PMI numbers clearly underscore how downside growth risks and upside inflation risks have already materialised.
Shock for first-time buyers as low deposit mortgages vanish
People hoping to move onto the British housing ladder have been hit by the biggest daily drop in low deposit mortgages since the mini-Budget in 2022.
Data provider Moneyfacts reports that lenders are continuing to pull products from the markets, as the cost of borrowing was driven higher last week by the Iran war.
They say there are now 5,856 residential mortgage products available, down from 6,144 on Monday. Just before the war began, borrowers had more than 7,600 residential mortgage products to choose from.
Moneyfacts also reports that average mortgage costs have risen again:
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Average 2-year fix has risen from 4.83% at the start of March to 5.51% today, the highest since February 2025.
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Average 5-year fix has risen from 4.95% at the start of March to 5.52% today, the highest since July 2024.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, explains:
Borrowers with a small deposit will also feel disheartened to find the average rate on a two-year deal at 95% loan-to-value has risen to 6.10%, with the five-year equivalent not too far off the 6% mark at 5.93%.
This will be a shock to first-time buyers especially, as many will not be able to build a deposit bigger than 5% due to the cost of living. As a casualty of the turmoil in the market, 204 deals have disappeared at the overall 95% loan-to-value tier, since the 6 March.
Saturday saw the biggest daily fall of 52 options since the mini-Budget, and 30 more options have gone as of this morning, with nine lost yesterday. On 28 September 2022, 52 options vanished in one day.
Eurozone growth hit by Middle East crisis as stagflation risks rise
Newsflash: Growth across the eurozone has almost stalled this month, as the Middle East crisis drives up inflation and risks triggering an economic downturn.
The latest poll of purchasing managers across euro area companies has found that output growth has slowed due to a drop in new orders, while input cost inflation has “accelerated sharply” to a three-year high.
The latest ‘flash eurozone PMI report’, from S&P Global, also found that the war has disrupted supply chains, and hurt companies’ optimism over the outlook.
This pulled the Flash Eurozone PMI Composite Output Index down to 50.5, from 51.9 in February, a 10-month low, and close to the 50-point mark showing stagnation.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says the survey shows that eurozone economic growth slowed this month, with a rising risk of a downturn later this year:
“The flash Eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth. Firms’ costs are rising at the fastest rate for over three years amid the surge in energy prices and choking of supply chains resulting from the war.
Supplier delays have jumped to their highest since mid-2022, largely linked to shipping issues. “Output growth has meanwhile slowed to nearstagnation thanks to a slump in business confidence and deterioration of new orders. The drop in future output expectations was the largest recorded since Russia’s invasion of Ukraine in 2022.
“The survey data are indicative of eurozone GDP growth slowing to a quarterly rate of just below 0.1% in March with the forward-looking indicators pointing to a heightened risk of a downturn the coming months. The survey’s price gauge is meanwhile indicative of consumer price inflation accelerating close to 3%, with cost pressure likely to add still further to selling price inflation in the coming months.
