UK economy grew by 0.1% in May despite impact of Iran war
The UK economy returned to growth in May with GDP rising 0.1%, in line with forecasts, after a 0.1% decline in April, despite rising energy costs from the Iran war.
Intelligence analysis by Llama
ONS data shows UK GDP rose 0.1% in May after a 0.1% April dip, with services up 0.3% but production and construction declining. Three-month growth slowed to 0.7%, and analysts warn the Iran conflict is suppressing activity while oil prices rise again.
The UK's economy is like a car that went a tiny bit faster in May after slowing down in April — only 0.1% faster, which is almost nothing. A war in the Middle East made gas and oil more expensive, and that hurt builders and factories, but scientists and shops did well enough to keep the car moving, just very slowly.
Analysis
A Slim Rebound Against a Darkening Backdrop
The 0.1% monthly rise in UK GDP for May is, on its own, barely a rounding error. What makes it newsworthy is what it survived to get there. April's contraction of 0.1% had raised fears that the Iran war's energy-price shock would tip the economy into outright stagnation. Instead, services output rose 0.3%, paced by a striking 5.1% jump in scientific research and development — the single largest contributor to monthly output according to the ONS. That headline, however, masks weakness elsewhere: production fell 0.5% and construction dropped 0.8%, sectors that are exposed both to higher fuel costs and to the shipping disruption that economists have warned about since the conflict escalated.
A Smoother Three-Month Picture, A Shakier Quarter
Strip out the monthly noise and the rolling three-month picture is more flattering, with GDP up 0.7% in the three months to May — a modest slowdown from 0.8% in the three months to April. Liz McKeown, the ONS's director of economic statistics, called this "robust growth," though she conceded the "last two months showed a weaker picture." That tension is the real story: the underlying trend is still positive, but momentum is fading precisely as the energy bill from the war is arriving. Analysts are already pencilling in stagnation for the second quarter as a whole. The ICAEW's Suren Thiru described the rebound as "dishearteningly weak" and warned that anxiety about the UK's economic health would not ease while the conflict suppresses construction and industrial production.
A Fiscal Cushion Melting Under the Chandelier
The political subtext is impossible to ignore. Reeves is expected to be replaced by Shabana Mahmood, and the prime minister-in-waiting, Andy Burnham, will inherit an economy that the IMF recently upgraded to 1% growth for the year as a whole — 0.2 percentage points better than its April forecast. But the Resolution Foundation estimates that more than half of the £23.6bn in "headroom" Reeves built against her fiscal rules at the spring statement will be wiped out by the war. With oil prices rising sharply again as hostilities resume, the Treasury's claim that the UK is "the fastest growing European G7 economy" will be harder to defend if the second-quarter print comes in flat. For Burnham, the May data is at best a small vote of confidence in the plan he is about to inherit, and at worst a warning that the cushion has thinned before the new government has even been sworn in.
Key points
- UK GDP rose 0.1% in May after a 0.1% decline in April, in line with economists' forecasts
- Scientific research and development surged 5.1%, the strongest contributor to monthly output
- Production fell 0.5% and construction dropped 0.8%, partly offsetting a 0.3% rise in services
- Three-month growth slowed to 0.7% from 0.8%, and analysts expect the second quarter to be broadly flat
- The IMF upgraded its 2026 UK growth forecast to 1%, but the Resolution Foundation says over half of the £23.6bn fiscal headroom from the spring statement will be eroded by the Iran war
If oil prices stabilise and the Iran conflict does not escalate further, the services-led recovery and the strong R&D contribution could carry the UK through the second quarter without a contraction. The IMF's upgrade to 1% annual growth, and the Treasury's claim of the fastest G7 growth in Q1, suggest the underlying momentum may yet absorb the energy shock.
Oil prices have risen sharply again as hostilities resumed, and the Resolution Foundation warns more than half of Reeves's £23.6bn fiscal headroom will be wiped out. With production and construction already falling and the second quarter likely to print flat, the new chancellor and prime minister-in-waiting could face a far weaker growth backdrop than the spring forecasts implied.
