The UK economy contracted by 0.1% in April, according to official figures, as the conflict with Iran began to take its toll on growth. The decline followed a 0.3% rise in March and was driven by higher energy prices resulting from the closure of the Strait of Hormuz, a vital shipping route.
The Office for National Statistics reported that the fall in gross domestic product was led by a 0.2% decline in services output, partly offset by a 0.1% rise in construction. The arts, entertainment and recreation sector was particularly affected, with the cancellation of multiple sporting events in the Middle East impacting UK-based businesses.
Chancellor Rachel Reeves said the economy was in a stronger position to deal with the costs of the war due to her choices, but acknowledged the conflict's impact at home. She criticised Donald Trump's 'folly' in unleashing the conflict, adding: 'This is not a war we wanted or joined, but one that will have an impact at home.'
Over the three months to April, GDP growth was 0.7%, but forecasters have downgraded expectations for the UK economy as higher oil prices drive up inflation. Fergus Jimenez-England of the National Institute of Economic and Social Research warned that the slowdown would intensify as higher energy costs feed through, particularly in the third quarter when the energy price cap rises.
Thomas Pugh of RSM UK said underlying growth would slow even if a deal is reached with Iran, citing higher energy prices, borrowing costs, and political uncertainty. The Bank of England is set to decide on interest rates next Thursday, balancing higher inflation against the risk of choking off weak growth.
