The UK economy contracted by 0.1% in April – the first monthly fall since August last year – as the Iran war raised costs for businesses and forced the cancellation of sporting events in the Middle East, according to official figures.
The Office for National Statistics said some firms cited the conflict as having increased costs and affected turnover. The closure of the Strait of Hormuz, a vital shipping route for oil tankers, sent crude oil prices surging to as high as $120 a barrel before hopes of a resolution pushed them down to a three-month low of $86 on Friday.
“UK economy shrank 0.1% in April as Iran war raised costs and cancelled sporting events.”
The downturn was led by a 0.2% decline in services output, partly offset by a 0.1% rise in construction. The ONS attributed the fall in services partly to a drop in sports activity, including “multiple sporting events in the Middle East affecting the output of UK-based businesses”. Construction output, while up over the month, “came solely from an increase in repair and maintenance”, with new work down 0.3%.
The contraction followed a stronger-than-expected 0.3% rise in March and had been forecast by economists. Over the three months to April, a less volatile measure, the economy grew by 0.7%.
Yael Selfin, chief economist at KPMG UK, said the April figure “points to renewed fragility in the UK economy, with pressure on both consumers and businesses likely to persist over the coming months”. She warned that consumers were bracing for a sharp rise in energy bills after the energy price cap rises in July, and had “signalled their intention to cut back on purchases and increase their savings, which will weigh on economic activity”.
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.”
Chancellor Rachel Reeves said the war “will have an impact at home” but argued that the economy was strong as it entered the crisis. “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. The choices I have made as chancellor mean our economy is in a stronger position to deal with the costs of the war,” she said.
Shadow chancellor Mel Stride countered: “Putting Benefits Street first leaves the economy weaker.”
Analysts expect the Bank of England to keep interest rates unchanged when it meets next week, as the economy faces a slowdown in the coming months.