The UK economy shrank by 0.1% in April, official figures show, as the Iran war and higher energy prices began to weigh on growth. The decline, recorded by the Office for National Statistics (ONS), followed a 0.3% expansion in March and raised fears of a contraction in the second quarter.
Chancellor Rachel Reeves said the economy had been performing well before the conflict, but acknowledged the war would have an impact at home. “This is not a war we wanted or joined, but one that will have an impact at home,” she said, adding that her fiscal choices had left the economy better placed to cope with the costs.
The downturn was led by a 0.2% fall in services output, partly offset by a 0.1% rise in construction. The ONS attributed weakness in arts, entertainment and recreation to cancelled sporting events in the Middle East affecting UK-based businesses. Construction gains came solely from repair and maintenance, with new work down 0.3%.
Over the three months to April, GDP grew by 0.7%, offering a less volatile picture. However, forecasters have downgraded expectations as higher oil prices drive up inflation. Fergus Jimenez-England of the National Institute of Economic and Social Research said the slowdown would intensify, with the impact most acute in the third quarter as the energy price cap rises.
Thomas Pugh of RSM UK said underlying growth would slow even with a deal in Iran, citing higher energy costs, borrowing costs and political uncertainty. Financial markets eased rate hike expectations after the data, while the pound fell 0.2% against the dollar. The Bank of England is due to decide on interest rates next Thursday.
