UK economy shrank by 0.1% in April as Iran war held back growth | Economic growth (GDP)
Official figures show the UK economy contracted by 0.1 per cent in April as the Iran war began to damage growth.
The UK’s strong growth in the first quarter has reversed as energy prices rose as a result of the conflict after Iran closed the Strait of Hormuz, a vital shipping route for global trade.
The fall in gross domestic product in April that economists had expected followed a 0.3% increase in March, according to the Office for National Statistics.
The data will highlight fears that the UK economy will contract in the second quarter of the year.
Chancellor Rachel Reeves tried to argue that the economy was strong heading into the crisis and criticized Donald Trump’s “stupidity” in unleashing the conflict.
Responding to the figures, she 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.”
He added: “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 continue the work of building a stronger and safer economy.”
The ONS said April’s GDP decline was due to a 0.2% fall in services output, partly offset by a 0.1% rise in construction.
Drivers of weak service production included administration and the arts, entertainment and recreation sector.
He noted that while construction output increased during the month, this was “solely driven by an increase in repairs and maintenance” and new jobs fell by 0.3%, despite Labour’s promise to “get Britain building” and build 1.5 million new homes.
The ONS said GDP growth for the three months to April (a longer-term perspective that tends to be less volatile) was 0.7%.
Most forecasters have significantly lowered their expectations for leading economies, including the UK, this year as high oil prices as a result of the conflict in the Middle East increase inflation and hurt growth.
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, said: “We expect this slowdown to intensify as higher energy costs fuel the economy; the impact will likely be felt most acutely in the third quarter as the energy price cap rises.”
As the Bank of England prepares to decide whether to raise interest rates on Thursday, inflation and employment market data due next week will provide a clearer picture of how the outbreak of war is affecting the economy.
