as the US-Israeli conflict with Iran continues Photograph: Kim Hong-Ji/Reuters
UK service sector firms keeping cutting jobs as costs rise
UK service sector companies continued to raise their prices, and cut staff numbers, last month – even before they’re hit by the energy shock.
The latest poll of purchasing managers at services firms has found that staffing numbers decreased for the seventeenth successive months in February, and that there was “another robust uplift in prices charged”.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“February data pointed to a solid reduction in employment numbers, despite a sustained recovery in business activity. Job losses reflected ongoing efforts to focus on boosting productivity and mitigate sharply rising input costs.
Higher payroll costs were widely cited as leading to a strong pace of overall input cost inflation. Greater food prices and technology costs were also reported in February. This contributed to another robust increase in prices charged by service providers, with the pace of inflation little-changed from January’s five-month high.”
On the upside, though, service providers recorded a further upturn in business activity during the month.
The S&P Global UK Services Purchasing Managers’ Index (PMI) fell slightly to 53.9 last month from January’s five-month high of 54.0, but still a level suggesting the economy was expanding.
Although Rachel Reeves is (or possibly was) doing better against her fiscal rules, headroom is still relatively low in historic terms…
The Chancellor’s headroom remains below most of her predecessors.
— Resolution Foundation (@resfoundation) March 4, 2026
This level of headroom still leave the public finances vulnerable to even historically average levels of economic volatility. pic.twitter.com/spJDv3bSim
There were three sources of bad news in yesterday’s assessment of the UK economy from the Office of Budget Responsibility, reports Resolution Foundation’s research director James Smith.
1) Growth: the latest forecasts are, once again, weaker than those presented in November. For the decade to 2028, the OBR is forecasting the weakest growth in a century, if you ignore the Covid-19 pandemic and the second world war
2) Unemployment: the new projections show unemployment rising over 5.3%, which would be the highest in over a decade. Younger people are being hit hardest by this.
3) Migration: Net migration is coming in weaker than expected in November.
EU hits back at Trump's threat against Spanish trade
The EU has hit back at Donald Trump’s threats to halt all trade with Spain over its decision not to allow the US use its military bases for Iran bombing missions.
The EU said it expected the US president to “honour” its bloc-wide tariff deal concluded last year but hinted at the possibility of retaliatory measures if Trump did isolate Spain in a revenge move.
“The Commission will ensure that the interests of the European Union are fully protected. We stand in full solidarity with all Member States and all its citizens and, through our common trade policy, stand ready to act if necessary to safeguard EU interests,” said trade spokesperson Olof Gill, adding:
“Trade between the European Union and the United States is deeply integrated and mutually beneficial.
“Safeguarding this relationship, particularly at a time of global disruption, is more important than ever and clearly in the interest of both sides.
“The EU and the United States concluded a major trade deal last year. The European Commission expects the United States to fully honour the commitments” undertaken in the joint statement of last August.
The EU is continuing to honour its part of that deal, allow many US goods into the bloc tariff free, even though the US supreme court ruled Trump’s 15% tariffs on EU goods were illegal.
The Resolution Foundation are presenting the findings of their analysis of yesterday’s spring statement now – it’s being streamed here.
Resolution’s CEO, Ruth Curtice, starts by saying it was not a usual forecast, explaining:
We had no new policy announcements from the chancellor. We certainly had no rabbits out of the hat. We had no red box. We had no red book from the Treasury, and I can confirm that the Two Chairmen pub, where the Treasury tend to gather afterwards, was also much quieter than usual.
Curtice adds that the “quite surreal” statement from the chancellor was overshadowed by world events, but there are three reasons to care about it.
This was an attempt from the Chancellor to shift how fiscal policy is done in the UK, moving to just one fiscal event in the autumn,
The OBR’s latest assessment of the economy shows the underlying trends in the economy, even if things are about to change. And there was a “reasonable improvement” in the fiscal position.
Then the Chancellor did spend some money. It’s just that she already told us she was going to spend it (including on Send support)
The market turmoil hasn’t prevented a UK autonomous vehicle software company winning new funding.
Oxa, based in Oxford, has raised $103m (£77m) – including $50m (£37m) from the UK’s National Wealth Fund.
Oxa plans to use the funds to develop Industrial Mobility Automation, and its physical AI and robotics technology, as well as pushing on with its global expansion plans.
UK minister for industry, Chris McDonald, said:
“Oxa is a great example of UK excellence in digital technologies that are transforming the global automotive sector, and this investment will boost productivity and improve freight efficiency at home and abroad.
With advanced manufacturing and digital technologies being central to our Modern Industrial Strategy, we’re supporting firms like Oxa to strengthen the UK’s position as a global leader in connected and automated mobility.”
The FTSE 100 couldn’t sustain its early rise.
The UK’s blue-chip share index is now down 22 points, or 0.2%, at 10,461 points, with airlines, banks and housebuilders among the fallers.
European markets are a little brighter, though; Germany’s DAX was up 0.26% in early trading, with France’s CAC just 0.07% higher.
Kathleen Brooks, research director at XTB, says:
Until there is a pause in this conflict and free flowing oil around the world, it is hard to see how markets can stage a meaningful recovery. We expect stocks and bonds to remain nervous and driven by headline risk.
The dollar has been king during this crisis, however, it is pulling back slightly today, and G10 currencies are clawing back some recent losses. This is likely to be temporary, especially if the oil price remains to the upside.
UK government bond prices are recovering a little of yesterday’s losses.
This has pushed the yield, or interest rate, on UK two-year, 10-year and 30-year gilts down by around 3 basis points (0.03 percentage points). A small move, but one that suggests slightly less panic in the bond markets today.
Bond yields tend to rise when inflationary pressures are building. And investors still see little chance of a Bank of England interest rate cut this month – it’s a 28% chance, according to the money markets today.
After two days of heavy losses, Britain’s stock market has opened calmly.
The FTSE 100 share index is up 84 points, or 0.17%, in early trading to 10,502, as investors return to the fray after London’s worst day in eleven months yesterday.
Thousands more Britons stranded in the Middle East are returning home on Wednesday as airlines ramp up their flights from the region, PA Media report.
Emirates is operating seven flights from Dubai to the UK while Etihad has two Abu Dhabi departures.
Virgin Atlantic will operate a flight from Dubai to London Heathrow.
British Airways has not restarted its usual flying programme from the region, but will run an evacuation flight to Heathrow from Oman capital Muscat, which it does not usually serve.
The UK Government has said it will charter a repatriation flight from Muscat “in the coming days”, but it has been reported there will be no major evacuation of the 130,000 British nationals who have registered their presence in the Middle East.
The Joseph Rowntree Foundation, the anti-poverty charity, have calculated that there will be limited growth in disposable incomes this parliament…
🔔New analysis alert!
— Joseph Rowntree Foundation (@jrf_uk) March 3, 2026
Our modelling finds that average annual household disposable incomes are projected to grow by just £40 over the course of the current parliament (from April 2024 to April 2029) after adjusting for inflation. pic.twitter.com/OrY9gniY8A
…and the growth may actually be over!
However, we estimate that we are already at the high point of the parliament, and that from April 2026 to April 2029, incomes are set to fall by £580.
— Joseph Rowntree Foundation (@jrf_uk) March 3, 2026
📊 These figures differ from the £1,000 increase over the parliament quoted by the Chancellor in her Spring Forecast speech.
📐This is because they are modelled on a household basis and take into account actual housing costs at 2025-26 levels, making them a more accurate reflection of whether families are likely to feel any better off.
— Joseph Rowntree Foundation (@jrf_uk) March 3, 2026
Oil up despite Trump offer to escort oil tankers through strait of Hormuz
The oil price is climbing again, as Donald Trump’s offer to have the US navy escort tankers through the strait of Hormuz fails to calm markets.
Brent crude is up 3.2% this morning at $84.08 a barrel, up from $72.48/barrel on Friday night before the Iranian conflict began.
Trump yesterday tried to get traffic moving through the strait of Hormuz – through which 20% of oil and gas would normally travel.
The US president wrote on his Truth Social platform:
“If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible.”
“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD.”
Updated
Markets fall in Asia-Pacific again
Asia-Pacific stock markets have continued to tumble today, on growing fears that the US-Israel war on Iran will cause an energy shock.
Japan’s Nikkei was down 3.6% in late trading, while South Korea has plunged by 12%.
Stocks continued to fall despite Donald Trump’s offer to have the US navy escort tankers through the strait of Hormuz.
The sell-off was so sharp that trading in both South Korea and Thailand was briefly suspended.
Updated
While the near-term picture for UK living standards is positive, the picture for the remainder of the Parliament is far bleaker.
The Resolution Foundation projects that after next year, the incomes of typical working-age families are projected to fall by 0.5 per cent, or £150, for the remaining two years of the Parliament.
CEO Ruth Curtice says:
“With wage growth set to tail off, the living standards picture for the rest of the Parliament is bleak. This should remind policy makers of the need to both navigate near-term uncertainty and support productivity-based economic growth over the medium term. That is the only way to meaningfully lift living standards throughout Britain.”
Introduction: War in Middle East threatens UK living standards growth
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The dust is settling after Rachel Reeves’s spring forecast statement yesterday, which showed that growth will be weaker than hoped this year while unemployment will be higher.
While the chancellor claimed the UK could ‘beat the forecasts again’, economists are concerned that the ongoing Middle East crisis will hurt the economy, and household finances, badly.
The Resolution Foundation have just released their overnight analysis of the Office for Budget Responsibility’s forecast.
The good news? The UK is set for a “decent”, one-off increase in living standards this year, and a bumper rise for lower-income families.
The bad news? A fresh energy price shock risks wiping out these gains.
The big picture? The medium-term picture for living standards remains bleak
According to Resolution’s calculations, living standards for typical working-age families are set to grow, by £300, over the coming year (between 2025-26 and 2026-27).
Lower-income households are set for a bigger bump in living standards, up 3.9% or £800. This would be the second strongest year for living standards in the past two decades for poorer families.
BUT if energy prices don’t drop, then all these gains will be wiped out.
If recent rises in the price of oil and gas were to be sustained they could add around a percentage point to inflation and £500 on to typical annual energy bills, Resolution say.
The energy price cap could raise by £500 in June says the Resolution Foundation. That puts everything else from the Spring Forecast in the shadows. Watch: https://t.co/KynP3Cq9mR
— Sam Coates Sky (@SamCoatesSky) March 3, 2026
Ruth Curtice, chief executive at the Resolution Foundation, says:
“The immediate economic outlook for Britain is highly uncertain, with yesterday’s forecasts already looking out of date, while the living standards picture for the rest of the Parliament is very lopsided.
“This coming year is set to be a decent one for living standards, and a bumper one for poorer families, as wages and benefit support rise above the level of inflation. But a fresh energy price shock risks puncturing this good news.
The agenda
9am GMT: Resolution Foundation event on the spring forecast
9.00am GMT: eurozone services PMI for February
9.30am GMT: UK services PMI for February
10am GMT: Eurozone unemployment report for January
2.45pm GMT: US services PMI for February
Updated
