Service industries in the eurozone shrank in April for the first time in almost a year as exports worsened amid the Middle East war, according to a closely-watched survey.

The purchasing managers’ index (PMI) from S&P Global slumped to a 62-month low of 47.6 last month from 50.2 in March, just above a preliminary estimate of 47.4. Any reading below the 50 mark points to contraction; any reading above indicates growth.

The composite survey, which also includes manufacturing, points to stagflation in the eurozone at the start of the second quarter, as the first decline in private sector business activity since December 2024 came alongside the sharpest rise in prices charged in three years.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said:

The final eurozone PMI data confirm the earlier signs of an economy slipping into decline during April as the ongoing war in the Middle East derails the recovery that had been building prior to the outbreak of the conflict.

Although indicative of only a modest 0.1% quarterly GDP decline so far, the absence of any signs of the crisis easing any time soon suggests that the downturn may soon deepen.

So far the service sector has been hardest hit, with consumerfacing business suffering a particular squeeze, amid a double whammy of surging energy prices and disruption to travel. However, while the manufacturing sector has shown resilience so far, this has reflected stock building as companies worry about further price hikes and supply squeezes.

This will not only dampen manufacturing growth in the coming months as the stock build fades, but will also have a knock-on effect for service sector businesses that are reliant on manufactured inputs, most notably food and of course refined fuels, should these further supply and price worries materialise.

The prospect of interest rate hikes are also front of mind among many financial service providers, hitting real estate activity in particular. However, how the European Central Bank responds to the sharp rise in inflation being signalled by the PMI will have a key bearing on the economic outlook well beyond real estate. The concern is that, with business growth expectations already down sharply since the war started, higher interest rates will exacerbate this initial slump in sentiment.

JD Wetherspoon has warned on profits for the third time in five months because of higher energy costs.

The surge in oil and gas prices triggered by the Iran war piles more pressure on Britain’s hospitality industry, which is already struggling with weak consumer spending and higher costs from national insurance contributions.

The pub chain, known for its cheap beer, reported 3.4% increase in like-for-like sales in the 13 weeks to 26 April, while sales so far this year are 4.3% ahead.

It said higher wage-related taxes will raise costs by £60m a year while higher energy prices will cost it an extra £7m.

Tim Martin, the chairman, said:

The company has a strong pipeline of new pubs and planned openings include Manchester airport, Heathrow airport, Paddington station, Charing Cross station and Shaftesbury Ave in central London.

As many hospitality operators, including Wetherspoon, have reported, there have been substantial increases in costs, which may result in profits slightly below market expectations.

Analysts at Peel Hunt led by Douglas Jack said:

Higher costs are mentioned, but the higher pricing since March is not.

We believe higher pricing early in the second half should boost margins in the second half.

Next has revealed far stronger sales than expected in the UK in the three months to the end of April – up 4.4% instead of the 1.3% predicted – thanks to bumper sales during warm weather in February and March.

The company said it now expects full year sales to rise by 5%, including 1% growth in the UK where it anticipates prices will rise by no more than 0.6% as a result of higher costs linked to the Middle East conflict.

Outside the UK, it still expects strong growth but it will put prices up in the Middle East to offset higher costs of transport and energy linked to the conflict.

Next said it expected an additional £20m of costs to the UK business from higher freight, fuel and energy costs while the cost of delivering to the Middle East is expected to rise by £17m, with other overseas costs rising by a further £10m. Overseas costs will be offset by putting prices up by as much as 8% in the Middle East.

Prices will not rise in Europe, where most cost increases have been offset by currency gains. In the UK, price rises are being offset by cost savings including lower factory prices.

The retailer added £8m to its full year profit expectations taking the total to just over £1.2bn.

UK government bond yields have dipped slightly after Tuesday’s surge, which saw long-term borrowing costs surge to a 28-year high, limiting the chancellor Rachel Reeves’ room for maneouvre.

The yield, or interest rate, on 30-year gilts has slipped 5 basis points to 5.68%, after climbing to 5.8% at one stage on Tuesday and later settling at 5.74%, the highest since 1998.

The yield on the 10-year government bond also dipped 5 bps to around 5%.

Kathleen Brooks, research director at the investment platform XTB, said:

What made Tuesday’s sell off particularly worrying was that it happened in isolation. There was no major sell off in bond markets in the US or Europe, and UK yields also decoupled from the oil price; UK yields rose even as the price of crude oil fell.

This suggests something else is triggering this sell-off, which explains why UK yields are being targeted more than their peers. Typically, when bond yields decouple from their peers it signals a rising local risk premium, such as a credibility issue and/or a potential funding crisis. This time, it also signals a rising political risk premium being added to UK yields.

Traders are watching local elections in Britain on Thursday, which are likely to add to pressure on Keir Starmer and raise questions over his future.

Meanwhile, spot gold has risen 2.4% to $4,666 an ounce.

The French shipping group CMA CGM said today that one of its vessels, the San Antonio, has been the target of an attack while transiting the strait of Hormuz, resulting in injuries among crew members and damage to the vessel (which might have prompted Donald Trump’s softening of tone).

The injured crew members from the attack, which happened on Tuesday, have been evacuated and are being provided with medical care, the company said.

CMA CGM is closely monitoring the situation and remains fully mobilised alongside the crew.

We are off to a good start in Europe too. The FTSE 100 index in London has jumped 1.5%, or 153 points, to 10,372 in early trading.

Diageo shares rose 4.6% (they were up 5.5% at the open) after the world’s top spirits maker, which also makes Guinness, posted surprise growth in quarterly organic sales.

Strong performances in Europe and Latin America – with strong Guinness demand in the UK and Ireland and stocking up in South America and the Caribbean ahead of the football World Cup – offset weakness in the US, its biggest market.

The company stuck to its 2026 forecast and said it was mindful of the Middle East war’s impact on energy, suppy and distribution.

New chief executive Dave Lewis, a former Tesco boss, who took over in January, said:

North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address tshis.

Mining (Anglo American, Antofogasta and Fresnillo) and banking stocks (Standard Chartered and NatWest Group) are also among the top risers in London.

The Italian borsa rose 1.3% while the French and Spanish markets climbed about 1%.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Asian stock markets hit record highs, following in Wall Street’s footsteps, and oil prices retreated after Donald Trump hailed “great progress” towards a “final agreement” with Tehran.

Brent crude oil futures fell nearly 2% to $107.7 a barrel. The dollar lost 0.36% against a basket of major currencies.

The US president said last night he was pausing ‘Project Freedom’, the US effort to guide stranded vessels out of the strait of Hormuz launched on Monday, but added that his blockade of Iranian ports would remain in place. In a social media post, Trump said he made the move based

on the request of Pakistan and other Countries, the tremendous Military Success that we have had during the Campaign against the Country of Iran and, additionally, the fact that Great Progress has been made toward a Complete and Final Agreement with Representatives of Iran”.

Iran is yet to comment.

MSCI’s All-Country World Index rose 0.56% to a new record while the broadest index of Asia-Pacific shares outside Japan leapt 2.8% at one stage, but then dipped 0.1%.

South Korea’s Kospi jumped nearly 8% through the 7,000 mark for the first time as the Seoul market reopened after a holiday. Samsung Electronics surged 15% which took its market value above $1 trillion, ahead of Warren Buffett’s investment firm Berkshire Hathaway and closing in on the retailer Walmart. Japan’s Nikkei rose almost 0.4%, Hong Kong’s Hang Seng added 0.8% and China’s CSI 300 and the Australian market were 1.3% ahead.

Stocks on Wall Street hit fresh all-time highs on Tuesday with the S&P 500 index up 0.8% and the tech-heavy Nasdaq Composite gaining 1% amid a wave of AI-driven trades.

Chris Weston, head of research at the broker Pepperstone in Melbourne, told Reuters:

Investors bought and continue to add to positioning in the 2026 winners. There has been some buying in S&P 500 materials stocks, but it’s tech that continues to attract the bulk of flows, notably in Apple and the memory plays.

The Agenda

• 9am BST: Eurozone services and composite PMIs for April

• 9.30am BST: UK services and composite PMIs for April

• 1.15pm BST: US ADP employment change for April