The UK's economy shrank by 0.1% in April – the first monthly fall since August – as the Iran war pushed up costs and hit turnover for businesses, official data shows. The contraction, revealed by the Office for National Statistics, came as crude oil prices surged after the conflict effectively closed the Strait of Hormuz, a key shipping route for oil and other commodities.
Just three months after the US and Israel began their war with Iran, the White House and Iranian regime have agreed a framework deal to end hostilities. US President Donald Trump heralded the agreement on social media with the words "Let the oil flow!" and later declared ships were "starting to move" out of the strait, which he called "totally safe, secure and pristine".
“UK economy contracted 0.1% in April as Iran war hit businesses, despite a fragile deal to reopen Strait of Hormuz.”
But ship-tracking data from MarineTraffic shows only two vessels have exited the waterway since Sunday – a bulk carrier and a tanker. Hundreds of vessels remain stuck in the gulf, with the risk of sea mines or drone strikes preventing safe passage. Neil Shearing, group chief economist at Capital Economics, said it remained to be seen whether the deal "represents a fragile truce or a durable settlement". He added that it would likely "take some time for oil flows through the Strait to return to pre-war levels" because tankers are in the wrong place, facilities need to ramp up, and insurance questions remain unanswered.
Denmark's Maersk, the world's second biggest shipping line, has five ships trapped in the gulf and said it was too early to assess the deal's impact. German rival Hapag-Lloyd has four ships stuck and hopes to get them out over the weekend after mines are cleared. Normally, traffic through the strait has been severely limited since 28 February.
The UK economy's 0.1% contraction in April was forecast by economists after stronger-than-expected growth in March. In the three months to April, the economy grew 0.7% – a less volatile measure – but analysts expect a slowdown. Yael Selfin, chief economist at KPMG UK, said the monthly figure "points to renewed fragility in the UK economy, with pressure on both consumers and businesses likely to persist". Consumers are bracing for a sharp rise in energy bills when the price cap rises in July, and have signalled they will cut spending.
Chancellor Rachel Reeves said the war "will have an impact at home" but argued her choices have put the economy in a stronger position to deal with the costs. Shadow chancellor Mel Stride countered that "putting Benefits Street first leaves the economy weaker".
Oil prices have fluctuated wildly, hitting a three-month low of $86 on Friday on hopes of a resolution, down from a high of $120 since the conflict began. Dr Katayoun Shahandeh of the University of London called the agreement a "temporary pause with diplomatic ambitions" and warned it is "extremely fragile because the hardest questions have not been resolved" – including Iran's nuclear programme and regional security. Dr Andreas Krieg of King's College London said he does not see it as a strategic win for the US: "Washington comes out of this war weaker, less trusted and less able to impose outcomes in the Middle East."