UK economy shrinks again in disaster for Reeves and Starmer | Politics | News

Rachel Reeves has been hit as figures show the UK economy contracted by 0.1% in April. Figures show UGDP grew by 0.7% in the three months to April 2026, but has shrunk recently. Data from the Office for National Statistics (ONS) showed services output rose by 0.8%, following growth of 0.8% in the three months to March 2026. Manufacturing output contracted by 0.1%, following growth of 0.2% in the three months to March 2026.

The Chancellor 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 participated in, but it is a war that will have an impact at home. Our economic plan is correct, with both the IMF and OECD recently raising their growth forecasts. The choices I have made as Chancellor mean that our economy is in a stronger position to cope with the costs of war, and that we are getting on with the job of building a stronger and more secure economy.”

The UK economy was expected to show signs of the impact of the Iran war; Forecasts pointed to a sharp pullback after a surprisingly strong start to the year.

Most economists predicted a 0.1% monthly decline in output in April, following the 0.3% growth seen in March. Retail figures for April revealed that sales fell by 1.3 percent, the fastest decline in almost a year, as rising gasoline and diesel prices affected fuel sales and reduced demand for clothing.

It is thought that most of the decline in sales was due to households stocking up on fuel in March as prices at the pumps began to increase.

Motor fuel sales fell 10.2% in April; this was the largest decline since November 2020.

Experts think this will negatively impact the performance of the dominant services sector in April, with overall GDP remaining well below the growth recorded in March.

March’s results helped deliver overall 0.6% growth in the first quarter of 2026, much better than expected.

However, experts predict that strong growth will likely start to fade in the second quarter.

Sanjay Raja, Deutsche Bank’s chief UK economist, said: “After a super strong start to the year, we expect the UK to see some correction in the second quarter.

“In fact, household incomes are likely to shrink as the energy shock resulting from the Iran conflict continues at full speed.

“The cost of living and the cost of doing business are likely to rise, putting pressure on activity and investment.”

He said he did not expect “a major drop in momentum yet” but predicted GDP would fall by about 0.1% monthly in April as the effects kick in.

Mr Raja added: “We continue to think activity will remain weak as the energy shock impacts households and businesses and domestic political uncertainty is likely to increase over the summer.”

Pantheon Macroeconomics experts are more pessimistic, predicting a 0.2% month-on-month decline in GDP in April, while Investec Economics expects the economy to remain flat.

Investec economist Ellie Henderson said: “Despite challenging global economic conditions, the UK economy managed to grow by 0.3% in March, beating expectations.

“Although growth in production has been fairly broad-based, some of this strength is attributable to consumers and firms pushing ahead with certain purchases in anticipation of subsequent price increases as the shock to higher energy prices takes hold.

“This front-loading may have also increased production in some regions in April, but ultimately the impact will be temporary, leading to weaker figures later as stocks dwindle.”

He added: “We expect some weakness in broader discretionary spending in April, which is likely to have impacted food services, accommodation and arts spending.”