The UK’s economy contracted by 0.1% in April, the first monthly fall since August last year, as the Iran war began to bite — pushing oil prices above $120 a barrel and raising costs for businesses and households alike, official figures show.
The Office for National Statistics said some firms had directly blamed the Middle East conflict for higher costs and lower turnover. The war triggered the effective closure of the Strait of Hormuz, a key shipping route for oil tankers, sending the price of Brent crude as high as $120. Though hopes of a resolution have since driven the benchmark down to a three-month low of $86, the damage has already rippled through the UK economy. Petrol and diesel prices have risen, and household energy bills are set to increase further when the energy price cap rises in July.
“UK economy shrank 0.1% in April, first fall since August, as Iran war pushed oil prices above $120 a barrel.”
Despite April’s dip, the less volatile measure of the three months to April showed the economy grew by 0.7% compared with the previous three-month period. But analysts warned that the monthly contraction was more telling. “The contraction in April is more indicative of growth prospects for the economy going forward,” said Yael Selfin, chief economist at KPMG UK. “It points to renewed fragility in the UK economy, with pressure on both consumers and businesses likely to persist over the coming months.”
Selfin added that consumers, bracing for a sharp rise in energy bills, “have signalled their intention to cut back on purchases and increase their savings, which will weigh on economic activity.” Businesses, meanwhile, face rising costs but “subdued domestic demand is limiting firms’ ability to pass these higher costs on to consumers, which is likely to squeeze profit margins.”
Chancellor Rachel Reeves acknowledged the war “will have an impact at home” but argued that her decisions had left the economy better placed to cope. “Before the conflict in the Middle East, growth was higher than expected and inflation was falling,” she said. “The choices I have made as Chancellor mean our economy is in a stronger position to deal with the costs of the war.”
Shadow chancellor Mel Stride struck a different note, saying “putting Benefits Street first leaves the economy weaker.”
Economists expect the Bank of England to keep interest rates unchanged when it meets next week, as it weighs the fallout from a conflict that has already reshaped the UK’s economic outlook — and shows no sign of ending.