Lead

UK businesses are halting investment and hiring plans as the fallout from the Iran war, combined with domestic political uncertainty, pushes up costs and weighs on confidence, according to a series of reports covered by The Guardian.

More than two months into the US-Israeli war on Iran, leading surveys of UK employers show companies are increasingly prioritising cost management over growth. A survey by accountancy firm BDO found that more than half of medium-sized businesses said higher energy and fuel costs, alongside supply chain pressures, were their biggest challenges.

The developments come as Chancellor Rachel Reeves travels to Paris for meetings with G7 finance ministers to coordinate action aimed at limiting the economic fallout from the war.

Coverage Comparison

Reporting from The Guardian highlights a deteriorating economic picture, with two separate articles covering the issue. One piece focuses on the impact of the Middle East conflict and domestic politics on business confidence, while another details the latest S&P Global purchasing managers' index (PMI) showing a sharp decline in services activity.

Both reports point to a 'perfect storm' of rising costs, supply shortages, and political uncertainty, with employers citing the war in Iran as the primary driver of weakened demand and hiring freezes.

Key Claims

  • Business activity contraction: The S&P Global PMI composite output index fell to 48.5 in May, down from 52.6 in April, indicating contraction. This was the weakest services activity since January 2021, and the lowest since July 2016 excluding the pandemic period, according to the same report.
  • Payroll and jobs data: Private sector payroll numbers have fallen for the 20th successive month, with a faster pace of job shedding in services. The number of payrolled employees dropped by 100,000 in April, as reported in The Guardian's coverage.
  • Vacancy decline: The Recruitment and Employment Confederation reported a 7.7% decrease in job vacancies from March to April, according to The Guardian.
  • Cost pressures: More than half of medium-sized businesses surveyed by BDO said higher energy and fuel costs, combined with supply chain pressures, were their primary challenges, as reported in The Guardian.
  • Employer priorities: Almost 60% of employers cite costs as their key priority, with rising energy and supplier bills compounding higher labour costs from increased employer national insurance and minimum wage rises, per a Chartered Institute of Personnel and Development report covered by The Guardian.

Perspectives

The economic impact is being felt across sectors. The services sector, which accounts for about 80% of the UK economy, is experiencing significant weakness. Chris Williamson, chief business economist at S&P Global Market Intelligence, is quoted as saying: 'The blame lies first and foremost with the war in the Middle East, though companies are also noting that domestic politics are taking an increasing toll, driving uncertainty higher, in turn deterring spending, hiring and investment.'

Economists warn of further deterioration. Andrew Wishart of Berenberg noted that if the slump in the PMI continues, GDP growth could collapse from an expansion of 0.6% in the first quarter to -0.2% in the second quarter, as reported by The Guardian.

Richard Austin, a partner at BDO, said businesses were 'struggling to absorb the latest economic shock in an uncertain global and political backdrop,' according to The Guardian.

The Guardian's coverage also notes that Chancellor Reeves is expected to announce the next phase of support for households and businesses to soften the impact of the conflict, though no specific measures have been detailed.