The UK economy contracted by 0.1% in April, according to new data from the Office for National Statistics (ONS), delivering a significant blow to Chancellor Rachel Reeves and Prime Minister Keir Starmer. The figures indicate that while the economy grew by 0.7% in the three months to April 2026, the monthly decline represents a setback after March's stronger performance.
Services sector shows growth but production lags
The ONS data revealed that services output grew by 0.8% in the three months to April, matching the growth seen in the three months to March. However, production output contracted by 0.1% during the same period, following a 0.2% growth in the previous three-month period. This mixed performance highlights the uneven nature of the economic recovery.
Impact of the Iran war on the economy
Britain's economy had been expected to show signs of strain from the Iran war, with forecasts suggesting a sharp pullback after a surprisingly strong start to the year. Most economists had predicted a 0.1% decline in output month-on-month in April, following the 0.3% growth recorded in March. The contraction aligns with these expectations.
Retail figures for April already indicated a sharp decline, with sales falling 1.3%—the fastest rate in almost a year. Soaring petrol and diesel prices hit fuel sales, while demand for clothing waned. Motor fuel sales plunged by 10.2% in April, the largest fall since November 2020, as households had stocked up on fuel in March when prices began rising at the pumps.
Expert analysis and forecasts
Deutsche Bank's chief UK economist, Sanjay Raja, commented: "After a super strong start to the year, we expect the UK to see some course correction in the second quarter. Indeed, with the energy shock from the Iran conflict in full swing, household incomes will likely be squeezed. The cost of living and the cost of doing business will have likely increased, weighing on activity and investment."
Raja noted that he does not anticipate a "big drop-off in momentum just yet," but forecasts GDP to edge down by around 0.1% month-on-month in April as the effects take hold. He added: "We continue to think activity will remain subdued as the energy shock catches up with households and businesses, while domestic political uncertainty likely ramps up over the summer."
Pantheon Macroeconomics experts are more pessimistic, forecasting a 0.2% monthly decline in GDP in April, while Investec Economics expects the economy to remain flat. Investec economist Ellie Henderson said: "Despite challenging global economic conditions, the UK economy managed to expand by 0.3% on the month in March, surpassing expectations. Although the growth in output was fairly broad-based, some of the strength could be attributed to consumers and firms bringing forward certain purchases in anticipation of subsequent price rises as the shock of higher energy prices filter through."
Henderson added: "This frontloading might have also lifted output in some areas in April, but ultimately its effect will be temporary and will lead to weaker numbers thereafter as inventories are then run down. We anticipate some weakness in broader discretionary spend in April, which is likely to have impacted spending on food services, accommodation and arts."
The first quarter of 2026 saw overall growth of 0.6%, far better than expected, driven by March's strong performance. However, specialists estimate that this strong growth will likely start to fade throughout the second quarter, as the energy shock and domestic political uncertainty take their toll.
