UK economy contracts as Iran war impact felt
UK GDP fell 0.1% in April as Middle East tensions raised costs and hit turnover, though output was still up over the three months to April.
Intelligence analysis by GPT-5.4 Mini
The ONS said April was the first monthly fall in UK output since August, with services, manufacturing, transport and travel all affected. Economists see the war-driven energy shock as a fresh drag on growth and a reason the Bank of England may keep rates unchanged next week.
The UK economy is like a big shop. In April, it sold a little less because war in the Middle East made fuel and energy more expensive, and some events were cancelled. Even though the month was weak, the shop was still doing better over the last three months than before.
Analysis
What happened
The Office for National Statistics said the UK economy contracted by 0.1% in April. That was the first monthly decline since August last year, and officials linked part of the drop to the impact of the Iran war on business activity.
The bigger three-month measure was still positive: output rose 0.7% in the three months to April versus the previous three months. But economists said the monthly fall mattered because it pointed to a weaker path ahead.
Where the weakness came from
The main drag was a 0.2% fall in the services sector, which makes up about three-quarters of the economy. Arts and entertainment, sports activities, and amusement and recreation were among the hardest hit areas. The ONS said some of that weakness reflected cancelled sporting events in the Middle East that reduced output for UK-based firms.
Manufacturing, transport and travel businesses also saw trading affected. The conflict pushed up crude oil prices after the effective closure of the Strait of Hormuz, which then fed into higher petrol and diesel prices in the UK. Household energy bills are also set to rise when the energy price cap increases in July.
What economists and ministers said
KPMG UK economist Yael Selfin said the April contraction looked more like the economy’s growth prospects going forward and pointed to renewed fragility. She said consumers may cut back on spending and save more, while firms may struggle to pass on higher costs.
Capital Economics said the Bank of England could still cut rates later in the year, but the weak activity could keep policy on hold for now. The Bank is widely expected to leave rates unchanged next week.
Chancellor Rachel Reeves said the war will have an impact at home and argued the economy is in a stronger position to absorb the shock than before. Opposition parties used the figures to attack the government’s economic management.
Key points
- The UK economy contracted 0.1% in April, according to the ONS.
- The services sector drove most of the monthly decline.
- Officials linked part of the weakness to the Iran war and disrupted sporting events in the Middle East.
- Higher oil prices are feeding into UK fuel costs and will soon lift household energy bills.
- Economists expect the Bank of England to keep interest rates unchanged next week.
The three-month data still showed the economy growing, which suggests the April drop may be a bump rather than a full reversal. If oil prices calm down and inflation pressures ease, households and businesses could regain some confidence and spending may stabilize.
Higher fuel and energy costs could keep squeezing households, leading them to cut purchases and save more. Businesses may struggle with both weaker demand and higher costs, which risks further pressure on profits and leaves growth flat or weaker in the next quarter.
