UK economic activity slowed markedly in March while inflation pressures accelerated sharply, reinforcing growing stagflation risks. PMI Services dropped from 53.9 to 50.5, the lowest since April 2025. PMI Composite fell from 53.7 to 50.3, pointing to the slowest pace of overall expansion in six months.
The sharp loss of momentum reflects a deterioration in demand conditions. According to Tim Moore, rising geopolitical tensions have “encouraged greater risk aversion”, with both businesses and consumers cutting back spending and delaying investment decisions. As a result, output growth in the services sector has weakened significantly.
At the same time, cost pressures are intensifying. Input cost inflation accelerated sharply in March, reaching its strongest level in 11 months, driven primarily by higher fuel, transportation, and broader supply chain costs. Firms reported widespread pass-through from suppliers.
The combination of slowing growth and rising prices is weighing heavily on sentiment. Business optimism has fallen sharply from a 15-month high in January, with firms citing fragile domestic conditions and concerns over higher borrowing costs.
