UK Firms Report Steep Activity Drop Amid Iran War and Political Uncertainty
Economic Impact and Business Sentiment in the UK
By William Schomberg
Survey Reveals Widespread Decline
LONDON, May 21 (Reuters) - British companies are suffering their most widespread drop in activity in over a year due to the economic fallout from the Iran war and political uncertainty at home, a survey showed on Thursday.
Key Indexes and Sector Performance
Data company S&P Global's preliminary UK Composite Purchasing Managers' Index for May tumbled to 48.5 from 52.6 in April, its first reading below the 50.0 growth threshold since April 2025 and far below the 51.6 median in a Reuters poll.
Services and Manufacturing Trends
A measure of activity among services firms plunged particularly sharply to its lowest since January 2021 when Britain was in the grip of the COVID-19 pandemic.
Manufacturing firms reported a rush of orders but the increase was largely due to clients trying to get ahead of possible further price increases or supply chain problems linked to the Iran war.
Political and Economic Uncertainty
As well as the hit from higher energy prices and shipping delays caused by the conflict in the Middle East, businesses said uncertainty about the future of British Prime Minister Keir Starmer and who might succeed him were hurting confidence.
"The UK economy is facing a perfect storm as rising political uncertainty adds to the growing impact from the war in the Middle East," Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
Outlook and Policy Implications
Economic Forecasts
Williamson said the reading suggested Britain's economy was on course to contract by a quarterly 0.2% in contrast to an unexpectedly strong start to the year.
Inflation and Cost Pressures
Businesses faced another hefty increase in their bills - only slightly below April's jump, which was the biggest in more than three years - led by greater energy costs caused by the Iran war and higher wages.
While the survey's overall measure of businesses' selling prices also rose by slightly less than in April, manufacturers increased their prices by the most since July 2022.
Employment and Future Expectations
Companies scaled back their hiring plans for the 20th month in a row and expectations for future business were the lowest since April 2025.
Bank of England's Dilemma
Williamson said the combination of weakening activity and still strong inflation pressures left the Bank of England in a quandary.
Financial markets expect the BoE to raise interest rates twice over the remainder of 2026 but most economists polled by Reuters earlier this month thought it will stay on hold.
(Writing by William Schomberg; Editing by Toby Chopra)
