UK economy was on the right track – Trump’s Iran war has wrecked that
The UK economy has a habit of surprising. Even if margins were good – and even the smallest growth was celebrated as cautious baby steps in the right direction – the importance of this was emphasized. it was Good things can happen if you go in the right direction and with a little more time and support.
Much of 2024 and 2025 has featured stories of difficult decisions being made to ensure prosperity for years to come. While the first three months of 2026, which will see GDP growth of 0.6 per cent, won’t exactly be seen on the cusp of prosperity, it has certainly allowed Rachel Reeves to point to a positive outcome from her first decisions as chancellor.
“The figures show that the economy is growing and that when we come into this conflict our economy is growing strongly because of the decisions I have made as chancellor,” he said on Thursday, before calling on fellow Labor members to “not risk” that progress by sidelining Keir Starmer.
These economic figures once again surprised some with their relative overperformance, which was higher than many economists expected; it even includes growth in March, the first full month of the Iran war; at a time when some think consumer response will be cautious, conservative and hoarding.
But growth is almost certain to be relegated to nothing more than a footnote to 2026; a useful increase at the beginning of the year before both economic and political problems begin to resolve.
It’s almost tempting to label it as “here’s what you could win”, in the tradition of British TV game shows of yesteryear.
The economy was growing, inflation was falling, the Bank of England’s interest rates were on a downward trend.
Fast forward exactly one more battle, the best part is 3000 miles away, and all of this is effectively wiped off the page. Donald Trump’s attack on Iran led to the closure of the Strait of Hormuz, which resulted in an increase in oil prices and the knock-on effects of an increase in fuel, energy, production, manufacturing and food prices. As inflation rebounds, driving up mortgage deals based on now-obsolete plans to further reduce interest rates, households inevitably face higher costs across the board, businesses are pausing hiring plans and bond markets are causing government borrowing costs to soar.
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
But again, blaming a single event or decision entirely for all the knock-on effects to come would be, as always, absurd and simplistic. After all, even earlier in the year, when the economy was performing quite well from what we can see, there were a lot of dissatisfied viewers.
Business groups complained about rising hiring costs. Different industries were and still are demanding additional support through exemptions or outright reduction of costs.
While the Bank of England was on a downward path, unemployment was also falling above The path has exploded since mid-2022, with additional concerns emerging last year about entry-level jobs and graduates finding employment; inflation, economic performance, wage growth, and more, all different pressures that simultaneously pull and push interest rate decisions in different directions.
There is also the economic aspect of postponing some purchases to the first half of the year due to seasonal spending rather than increasing overall consumption. This has also been seen in previous years, and in an alternative 2026 growth could be said to be sluggish in the first half and still fairly steady throughout the year.
So, it is far from a case of completely going from good to bad, but there is no doubt that the chance for real progress is being hindered.
The version of the economy described in first quarter figures no longer exists. This future has been erased for us at least this year.
But there is now also a reason to point to domestic issues (see local elections and their after-effects) that might have happened anyway. This contributes to uncertainty and hinders national growth.
Either way, firms and households are having to face the realities ahead, and this looks like a challenging time for everyone to balance priorities and finances.
It is to be hoped that the resilience that British businesses and consumers have previously shown can shine once again, against all odds and expectations, no matter what upheavals and upheavals are presented to them by leaders both near and far.
