The UK economy shrank by 0.1% in April, official figures show, as the Iran war pushed up energy prices and hit output. The drop, which followed a 0.3% rise in March, was driven by a decline in services, particularly in the arts and entertainment sector due to cancelled sporting events in the Middle East.
The Office for National Statistics said that over the three months to April, GDP grew by 0.7%, but the monthly fall raises fears of a contraction in the second quarter. Chancellor Rachel Reeves blamed the conflict for the slowdown, stating: “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. This is not a war we wanted or joined, but one that will have an impact at home.”
Construction output rose 0.1% in April, but only due to an increase in repair and maintenance, while new work fell 0.3%. Most forecasters have downgraded their UK growth expectations this year as higher oil prices drive up inflation. Fergus Jimenez-England, an economist at NIESR, warned the slowdown will intensify as higher energy costs feed through, with the third quarter likely hit hardest when the energy price cap rises.
Thomas Pugh of RSM UK said political uncertainty, including a potential Labour leadership challenge, will not help the outlook: “Underlying growth will slow from here, even if there is a deal in Iran.” The Bank of England faces a balancing act between higher inflation and weak growth ahead of its next interest rate decision. Financial markets now expect only one quarter-point rate rise this year, and the pound fell 0.2% against the dollar after the GDP data.
