Britain’s private sector growth came to a near-standstill in March 2026 as a combination of rising input costs and mounting uncertainty around the Iran war pushed the economy closer to what many economists are now openly describing as stagflation — the painful combination of stagnant growth and persistent inflation that plagued the UK in the 1970s.
What the PMI Data Shows
S&P Global’s composite Purchasing Managers’ Index fell to just 50.3 in March, down sharply from 53.7 the previous month. A reading above 50 signals expansion, but this near-miss with contraction territory indicates the economy has effectively stopped growing. The services sector — the backbone of the UK economy — fell to 50.5 from 53.9 in February, its weakest reading since April 2025. Overall input costs for UK private sector firms rose at their fastest pace since early 2023, with roughly 40% of service companies reporting higher costs in March.
What Is Stagflation?
Stagflation describes an economic condition combining weak or absent growth with elevated or rising inflation. It is notoriously difficult for policymakers to address because conventional remedies pull in opposite directions: raising interest rates to curb inflation tends to further suppress growth, while cutting rates to stimulate activity risks making inflation worse. The UK’s last serious bout of stagflation in the 1970s is remembered as one of the most economically damaging periods in modern British history.
The Iran War Factor
Survey respondents pointed directly to the Iran war and Strait of Hormuz closure as a key driver of the March deterioration. The conflict has disrupted global shipping, pushed up fuel prices, and created profound uncertainty for businesses planning investment and hiring. Consumer confidence has fallen sharply, with households cutting discretionary spending as energy and petrol bills rise. Business confidence fell sharply in March after hitting a 15-month high just two months earlier in January.
Government Response
Chancellor Rachel Reeves has resisted calls for emergency fiscal intervention, arguing that a diplomatic resolution to the Iran conflict is the most effective path to lower prices. However, the PMI deterioration comes at an awkward time for a government that has made economic growth the centrepiece of its political narrative. The Office for Budget Responsibility is expected to revise down growth forecasts if current conditions persist into the summer.
Business Pressure
The CBI has described the situation as a “triple squeeze” for many firms: rising energy costs, higher employer National Insurance contributions that came into force in April 2025, and weaker consumer demand. Many small businesses are in survival mode rather than thinking about expansion, with investment intentions among smaller firms at their lowest level in several years.
What Could Turn Things Around?
The two-week ceasefire agreed between the US and Iran on 7 April has provided some hope. If peace talks in Islamabad produce a durable agreement and the Strait of Hormuz fully reopens, confidence could begin to recover. Most economists agree, however, that the full economic impact of the Iran war is still feeding through the system and the UK faces a difficult few months regardless of how events in the Middle East ultimately unfold.