The UK economy contracted by 0.1% in April, official figures showed on Friday, as the Iran war began to bite – the first monthly fall since August last year.
The Office for National Statistics said the downturn, which had been forecast by economists after a stronger-than-expected 0.3% rise in March, was driven by a 0.2% decline in services output. Construction output edged up 0.1% but only because of a rise in repair and maintenance; new work fell 0.3%.
“UK economy contracted 0.1% in April as Iran war drove up oil prices, hitting services and consumer spending.”
The trigger was the effective closure of the Strait of Hormuz, a vital shipping route for oil tankers, after conflict broke out with Iran. Brent crude surged as high as $120 a barrel before sliding to a three-month low of $86 on Friday on hopes of a resolution. But the damage had already been done: petrol and diesel prices rose in the UK, and household energy bills are set to jump again when the price cap rises in July.
Businesses felt the strain. The ONS noted the cancellation of multiple sporting events in the Middle East, which hit the output of UK-based arts, entertainment and recreation firms. 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”. Consumers, she added, “have 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, predicted the slowdown would 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 sought to emphasise the economy’s underlying strength. “Before the conflict in the Middle East, growth was higher than expected and inflation was falling,” she said. “This is not a war we wanted or joined, but one that will have an impact at home.” She added that her choices had put the economy “in a stronger position to deal with the costs of the war” and had criticised Donald Trump’s “folly” in unleashing the conflict.
Shadow chancellor Mel Stride struck a different note, saying “putting Benefits Street first leaves the economy weaker”. The data will fuel fears that the UK could contract in the second quarter as a whole, despite 0.7% growth over the three months to April on a less volatile measure.