The UK economy contracted by 0.1% in April – the first monthly fall since last August – as the Iran war began to bite, official data from the Office for National Statistics shows.
The downturn followed stronger-than-expected growth of 0.3% in March, and was driven by a 0.2% decline in services output. The ONS attributed part of that fall to cancelled sporting events in the Middle East that hit UK-based businesses, while construction eked out a 0.1% rise thanks to repair and maintenance, as new work fell 0.3%.
“UK GDP fell 0.1% in April, first drop since August, as Iran war drove up energy costs.”
The trigger was Iran’s closure of the Strait of Hormuz, a vital shipping route for oil tankers. Crude oil prices surged as high as $120 a barrel before sliding to a three-month low of $86 on hopes of a resolution. The spike has pushed up petrol and diesel prices in the UK, and household energy bills are set to rise further when the energy price cap increases in July.
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 over the coming months”. She added that consumers had “signalled their intention to cut back on purchases and increase their savings”, and that subdued demand would squeeze firms’ ability to pass on higher costs, likely squeezing profit margins.
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: “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. This is not a war we wanted or joined, but one that will have an impact at home.” She insisted that her choices had left the economy “in a stronger position to deal with the costs of the war”.
Shadow chancellor Mel Stride countered that “putting Benefits Street first leaves the economy weaker”.
Over the three months to April, a less volatile measure, the economy grew 0.7%. But economists warned that the contraction in April was more indicative of what lies ahead, as higher oil prices and the looming energy cap rise weigh on activity.