The United Kingdom's economy contracted by 0.1 per cent in April, marking the first decline since last August, as the Iran war began to take its toll. The Office for National Statistics (ONS) reported that gross domestic product (GDP) fell sharply from growth of 0.3 per cent in March and 0.4 per cent in February.
Services Sector Drags Down Growth
The contraction was driven by a 0.2 per cent fall in the services sector, partially offset by a 0.1 per cent rise in construction and 0.4 per cent growth in manufacturing. The ONS highlighted that the service sector was hit partly by a 4.3 per cent drop in arts, entertainment and recreation, with the sports industry seeing a 9.1 per cent contraction in output as numerous sporting events in the Middle East were cancelled due to the conflict.
Three-Month Growth Holds Up
In the three months to April, GDP grew by 0.7 per cent, according to the ONS. However, the monthly decline is the latest signal that the Iran war is squeezing some sectors. Recent official retail figures revealed sales fell at their fastest rate for almost a year, down 1.3 per cent, as soaring petrol and diesel prices hit fuel sales.
Government Response
Chancellor Rachel Reeves acknowledged the war in the Middle East was hitting the economy. She stated: “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.” She added that her choices as Chancellor have put the economy in a stronger position to deal with the costs of the war.
Economic Outlook
The figures will stoke fears that the Iran war will deal a sharp blow to Britain’s economy due to surging fuel and energy costs. The Bank of England and major forecasters, such as the International Monetary Fund and the Organisation for Economic Co-operation and Development, have downgraded GDP forecasts for this year. The Bank will decide on interest rates on June 18, with many economists expecting policymakers to vote to hold at 3.75 per cent until the impact on inflation and output becomes clearer.
Expert Analysis
Experts believe that after an unexpectedly strong start to the year, when GDP grew by 0.6 per cent in the first quarter, growth will progressively fade over the rest of 2026. Stuart Clark, portfolio manager at Quilter, said: “Households and businesses alike have tightened their belts in the face of increasing costs and postponements of sporting events in the Middle East saw the services sector contract consequently. While the three-month growth has held up, the first quarter of the year is looking very much like a false dawn, and with repeated resolutions between the US and Iran failing to pass, conditions are going to remain tough for longer still.”
Rob Wood at Pantheon Macroeconomics is forecasting growth to slow to 0.2 per cent in the second quarter and 0.1 per cent in the third quarter. However, the Item Club warned the UK could be left “flirting with recession”. Matt Swannell, the Item Club’s chief economist, said: “The rising price of household essentials, combined with a deteriorating jobs market, will squeeze households’ spending power. Meanwhile, elevated input costs, tighter financial conditions and lingering geopolitical uncertainty will cause businesses to put some investment decisions on hold.”
