S&P trims Britain and Egypt growth view

S&P Global Ratings has lowered its growth expectations for both the UK and Egypt, saying the economic fallout from conflict-linked disruption across the Middle East is feeding through energy prices, trade routes and business confidence. For Egypt, S&P cut its forecast for real GDP growth in the 2025-2026 fiscal year to 4.7 per cent from 4.8 per cent, while also trimming the following year to 4.3 per cent from 4.7 per cent. For the UK, it said growth in 2026 would moderate to 1.1 per cent as higher energy costs weigh on activity.

The revisions underline how a conflict centred far from London and Cairo is rippling through economies with very different structures but shared exposure to imported energy, supply-chain friction and weaker sentiment. S&P’s broader outlook for Europe had already signalled a softer path for the UK, forecasting 1 per cent growth this year against an earlier 1.2 per cent view, with the wider Middle East war denting recovery prospects across the region.

For Egypt, the main strain comes from maritime disruption and the vulnerability of an economy that relies heavily on external financing and hard-currency inflows. S&P said the lower outlook was tied mainly to shipping disruption. That assessment fits with wider evidence showing how turmoil around Red Sea and Suez routes has hit a critical source of foreign exchange. UNCTAD figures cited by S&P Global’s shipping analysis showed the Red Sea crisis had triggered a 40 per cent drop in Suez Canal revenues, while canal fees account for a sizeable share of government income and foreign-currency earnings.

Pressure inside Egypt’s domestic economy has also become clearer in business surveys. The S&P Global Egypt Purchasing Managers’ Index fell to 48.0 in March from 48.9 in February, marking the fourth straight monthly decline and the weakest reading since April 2024. Companies reported that war-related uncertainty had weakened demand and pushed up costs, especially for fuel and imported goods. David Owen, senior economist at S&P Global Market Intelligence, said the March reading was still consistent with annual GDP growth of around 4.3 per cent, suggesting the non-oil economy retains an underlying growth base even as external shocks intensify.

Egypt’s fiscal calendar adds another layer of importance to the downgrade. The country’s 2025-2026 fiscal year runs from July 2025 to June 2026, meaning S&P’s revised 4.7 per cent view covers a period in which shipping disruption, higher energy costs and exchange-rate pressures have all become more visible. Cairo has been trying to steady public finances through tax facilitation measures, export support and broader reform efforts, but the external environment has made that task more difficult.

Britain’s downgrade reflects a different transmission channel. There, the immediate issue is not canal revenue but inflationary pressure and delayed spending decisions. S&P said UK growth would slow as higher energy prices linked to the conflict filter through the economy. Business surveys point in the same direction. The S&P Global services PMI for March fell to 50.5 from 53.9, while the composite reading dropped to 50.3. Firms reported the sharpest month-on-month rise in input costs since 2021, driven by energy, transport and raw material prices. Export business also slipped into contraction as clients pulled back and investment decisions were postponed.

That matters for policymakers because Britain is already grappling with weak momentum and stubborn price pressures. A renewed energy shock narrows the room for easier monetary policy and raises the risk of softer household demand. S&P’s sovereign commentary indicates the conflict has complicated an outlook that official forecasters had already marked down before the latest escalation. The message is that even if direct physical disruption is concentrated in the Middle East, secondary effects on transport, fuel costs and confidence are broad enough to reach mature European economies quickly.

The wider international backdrop supports that view. World Bank President Ajay Banga said the war could cut global growth and trigger broader knock-on effects, while IMF Managing Director Kristalina Georgieva warned that the conflict would lead to slower growth and higher inflation even if it eased quickly. Those warnings help explain why rating agencies and economists are adjusting forecasts beyond the immediate conflict zone.