UK economy shrank 0.1% in April as Iran war weighed on growth

Official figures show the UK economy contracted by 0.1% in April as the effects of the Iran war began to hinder growth. Energy prices rose after Iran closed the Strait of Hormuz, a vital shipping route. The strong first-quarter expansion reversed. The Office for National Statistics reported the decline followed a 0.3% increase in March and was expected by economists.

The data raises fears that the economy will shrink in the second quarter. Chancellor Rachel Reeves has argued the economy was strong entering the crisis and criticized Donald Trump's "folly" in unleashing the conflict. Responding to the figures, she said: "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 strengthened the economy to deal with war costs and that the government is building a more secure economy.

The GDP downturn was led by a 0.2% decline in services output, partly offset by a 0.1% rise in construction. Weak services included administration, arts, entertainment, and recreation. Construction output rose solely from repair and maintenance, with new work down 0.3% despite Labour's pledge to build 1.5 million new homes.

Over three months to April, GDP grew 0.7%. Most forecasters have downgraded expectations for leading economies, including the UK, as higher oil prices from the conflict drive inflation and hit growth. Fergus Jimenez-England, an associate economist at 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 as the energy price cap rises."

Data on inflation and the jobs market due next week will clarify how the war outbreak has affected the economy, as the Bank of England prepares to decide on interest rates on Thursday.