Britain’s economy has contracted for the first time in eight months amid signs that the Iran war is beginning to take its toll on some sectors.
The Office for National Statistics (ONS) said gross domestic product (GDP) declined by 0.1 per cent in April in a sharp pullback from growth of 0.3 per cent in March and 0.4 per cent in February.
The decline was driven by a 0.2 per cent fall in services, which was partially offset by a 0.1 per cent rise in construction and 0.4 per cent growth in manufacturing.
In the three months to April, GDP grew by 0.7 per cent, according to the ONS.
The ONS said the all-important service sector performance was hit partly by a 4.3 per cent drop in arts, entertainment and recreation, with the sports industry seeing a 9.1 per cent contraction in output as a raft of sporting events in the Middle East were cancelled due to the conflict.
It is the latest signal that the Iran war is squeezing some sectors, after recent official retail figures revealed sales fell at their fastest rate for almost a year, down 1.3 per cent as soaring petrol and diesel prices hit fuel sales.
Chancellor Rachel Reeves acknowledged the war in the Middle East was hitting the economy.
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.”
Ms Reeves added: “The choices I have made as chancellor mean our economy is in a stronger position to deal with the costs of the war, and we are getting on with the job of building a stronger and more secure economy.”
The figures will stoke fears that the Iran war will deal a sharp blow to Britain’s economy due to surging fuel and energy costs, with the Bank of England and major forecasters, such as the International Monetary Fund and the Organisation for Economic Cooperation and Development, having downgraded GDP forecasts for this year.
The Bank will decide on interest rates on 18 June, with many economists expecting policymakers to vote to hold at 3.75 per cent until the impact on inflation and output becomes clearer.
Experts believe that after an unexpectedly strong start to the year, when GDP grew by 0.6 per cent in the first quarter, growth will progressively fade over the rest of 2026.
Stuart Clark, portfolio manager at Quilter, said: “Households and businesses alike have tightened their belts in the face of increasing costs and postponements of sporting events in the Middle East saw the services sector contract consequently.
“While the three-month growth has held up, the first quarter of the year is looking very much like a false dawn, and with repeated resolutions between the US and Iran failing to pass, conditions are going to remain tough for longer still.”
Rob Wood at Pantheon Macroeconomics is forecasting growth to slow to 0.2 per cent in the second quarter and 0.1 per cent in the third quarter.
But the Item Club warned the UK could be left “flirting with recession”.
Matt Swannell, the Item Club’s chief economist, said: “The rising price of household essentials, combined with a deteriorating jobs market, will squeeze households’ spending power.
“Meanwhile, elevated input costs, tighter financial conditions and lingering geopolitical uncertainty will cause businesses to put some investment decisions on hold.”
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