The UK economy contracted by 0.1% in April as the Iran war began to take its toll on growth, official figures show. The decline followed a 0.3% increase in March, according to the Office for National Statistics (ONS), and was driven by higher energy prices resulting from the conflict in the Middle East.
The ONS reported that the downturn was led by a 0.2% fall in services output, partly offset by a 0.1% rise in construction. The arts, entertainment and recreation sector was particularly weak, with the ONS citing cancelled sporting events in the Middle East affecting UK-based businesses. Construction output benefited solely from increased repair and maintenance, as new work fell by 0.3%.
Chancellor Rachel Reeves responded to the figures, 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.” She added that her choices as chancellor had put the economy in a stronger position to deal with the costs of the war.
Over the three months to April, GDP grew by 0.7%, a longer-term perspective that is less volatile. However, most forecasters have downgraded expectations for the UK economy, as higher oil prices drive up inflation and hamper growth. The Bank of England is set to decide on interest rates next week amid conflicting pressures.
Economists warned of further slowdown. Fergus Jimenez-England of the National Institute of Economic and Social Research said: “We expect this slowdown to intensify as higher energy costs feed through the economy, with the impact likely to be felt most acutely in the third quarter.” Thomas Pugh of RSM UK noted that underlying growth will slow even if a deal in Iran is reached, citing higher energy prices, borrowing costs and political uncertainty.
The soft April data underscore the challenge for the Bank of England, which must balance higher inflation against weak growth. Financial markets now expect only one quarter-point rate rise for the rest of the year, and the pound fell 0.2% against the dollar after the figures were released.
