The UK economy shrank by 0.1% in April 2026, the first monthly fall since August last year, as the Iran war began to take its toll. Official data from the Office for National Statistics showed that higher energy prices caused by the conflict – including the effective closure of the Strait of Hormuz, a vital shipping route for oil tankers – raised costs and reduced turnover for businesses. The contraction followed a stronger-than-expected 0.3% rise in March and was widely forecast by economists.
The war in the Middle East has disrupted global oil supplies, sending the price of Brent crude as high as $120 a barrel. Although prices later fell to a three-month low of $86 on hopes of a resolution, the impact has already fed through to UK petrol and diesel prices, and household energy bills are set to rise further when the energy price cap increases in July. Oil prices also affect the cost of many other goods and services, creating a broad inflationary pressure.
“How the Iran conflict is hitting UK growth, energy bills, and businesses.”
In the three months to April – a less volatile measure – the economy still grew by 0.7% compared with the previous quarter. But analysts warned that the April figure points to "renewed fragility". Yael Selfin, chief economist at KPMG UK, said the contraction "is more indicative of growth prospects going forward". Consumers are bracing for sharp energy bill rises and have signalled they intend to cut back on purchases and increase savings, which will weigh on economic activity. Businesses face rising costs but subdued domestic demand limits their ability to pass those costs on to consumers, squeezing profit margins.
Chancellor Rachel Reeves said the war "will have an impact at home" but that the economy was in a stronger position to deal with the costs because of choices she had made. Shadow Chancellor Mel Stride criticised the government, saying "putting Benefits Street first leaves the economy weaker".
The ONS said the downturn was led by a 0.2% decline in services output, partly offset by a 0.1% rise in construction. The weak services included arts, entertainment and recreation, with the cancellation of multiple sporting events in the Middle East affecting UK-based businesses. Construction output rose but only because of an increase in repair and maintenance; new work fell 0.3%.
Q: How does the Iran war affect UK energy prices? The war led to the effective closure of the Strait of Hormuz, a key route for oil tankers. This caused crude oil prices to surge, pushing up petrol and diesel prices in the UK. Household energy bills will also increase as the energy price cap rises in July.
Q: What does a 0.1% contraction mean for households? While small, the contraction signals that the economy is slowing. Consumers are likely to face higher costs for energy and other goods, and may cut back on spending. This could lead to reduced economic activity and potentially affect jobs and wages.
Q: Could the UK economy enter a recession? The contraction in April raised fears that the economy will contract in the second quarter of 2026. Most forecasters have downgraded expectations for UK growth due to higher oil prices driving up inflation and hitting growth. A recession would require two consecutive quarters of contraction; this is possible but not certain.
What happens next depends on the duration of the Iran war and oil price fluctuations. The Bank of England is expected to keep interest rates unchanged when it meets next week. The energy price cap rise in July will add to household bills, and the full effects of higher oil prices are expected to be felt most acutely in the third quarter, according to economists.