The Office for National Statistics (ONS) has confirmed that the UK economy expanded by 0.6% in the first quarter of 2026, unrevised from the initial estimate. However, growth in the final quarter of 2025 was revised down to 0.1% from the previously reported 0.2%, and annual GDP for 2025 was adjusted to 1.3%, down from 1.4%.
Monthly Contraction in April
Monthly data for April 2026 showed the economy contracted by 0.1%, reversing the 0.3% growth recorded in March. This decline reflects the initial impact of the conflict with Iran, which led to soaring fuel and energy costs. An interim peace deal has since been agreed between the US and Iran, but the nearly four months of war are expected to weigh on growth throughout the year.
Downgraded Forecasts
The Bank of England, International Monetary Fund, and Organisation for Economic Co-operation and Development have all downgraded their GDP forecasts for 2026 due to the war's economic effects.
Household Finances Under Pressure
Real GDP per head increased by 0.6% in Q1 2026 and was 0.7% higher than a year earlier. However, real household disposable income fell sharply by 0.8%, compared with a 1.2% rise in the previous quarter. The ONS attributed this to rising taxes offsetting higher incomes and inflation eroding spending power.
The household saving ratio decreased by 0.7 percentage points to 8.9%, driven by a fall in savings contributions outside pensions, indicating households are saving less.
Sector Breakdown
The services sector grew by 0.8% in Q1 2026, driven by strength in computer programming, wholesale, and advertising. Construction and production both expanded by 0.2%, though construction only partially reversed recent weakness.
Liz McKeown, director of economic statistics at the ONS, said: “Services were the main driver of growth in the latest quarter, with strength in computer programming, wholesale and advertising only partially offset by falls in rental companies and recruitment agencies. Production and construction also both grew overall, although construction only partly reversed its recent weakness. The household saving ratio continued to ease at the start of 2026 but remains above its pre-pandemic levels.”
