In March, British factories experienced significant cost pressures and the longest delivery delays since mid-2022, largely attributed to the ongoing conflict in the Middle East and ships avoiding the Strait of Hormuz, according to a recent survey.

The final S&P Global UK Manufacturing Purchasing Managers' Index (PMI) for March recorded a decline to 51.0, falling short of the preliminary estimate of 51.4 and February's 51.7.

The output gauge, a key indicator in the survey, dropped to 49.2, marking the first contraction since September and down from 52.5 in February. Additionally, growth in new orders has slowed.

Manufacturers reported the fastest rise in input costs since October 2022, with a measure of 71.0. This increase from February represented the most significant month-on-month change in the index since October 1992, following Britain's exit from the European Exchange Rate Mechanism.

The March input costs figure slightly exceeded a preliminary reading of 70.2, primarily driven by surging oil and gas prices, along with escalating transportation costs linked to the Middle East conflict, according to S&P.

Output prices experienced their largest increase in nearly a year, as manufacturers began to transfer their rising costs to consumers.

Rob Dobson, director at S&P Global Market Intelligence, commented, "The war in the Middle East and ongoing concerns about domestic economic policy led to a scaling back of production."

Dobson also noted that the slowdown in production was likely due to supply issues rather than a decline in demand, although demand could be tested if the conflict does not resolve quickly.

Delivery delays intensified at the fastest rate since July 2022 as shipping routes were altered due to the closure of the Strait of Hormuz by Iran, following U.S.-Israeli attacks that began in late February.

This data highlights the challenges faced by the Bank of England. Investors anticipate that the BoE may raise interest rates two or possibly three times this year to curb rising inflation driven by the conflict. However, most economists surveyed by Reuters believe the central bank is likely to wait until it has a clearer understanding of the conflict's impacts. They argue that the already sluggish pace of economic growth could mitigate inflationary pressures.

The manufacturing PMI's employment index fell for the 17th consecutive month and recorded its most significant decline in seven months, while firms' optimism about the upcoming year reached a six-month low.