UK services firms report surge in costs, fading optimism as Iran war takes toll

UK services firms reported a sharp rise in input costs and declining business confidence, citing disruptions linked to heightened geopolitical tensions in the Middle East, particularly surrounding Iran. The escalation has pressured global shipping lanes and energy supply routes, driving up oil prices and contributing to inflationary pressures that are being passed through to UK service providers. This cost surge threatens to delay anticipated Bank of England rate cuts, keeping sterling-sensitive assets and UK government bond yields under pressure. Markets are particularly focused on upcoming CPI data and any further signs of supply chain rerouting around the Strait of Hormuz. Traders will watch the next BoE monetary policy meeting for signals on whether persistent cost pressures are influencing the central bank’s inflation outlook.

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