The UK economy grew by 0.6 per cent this year according to latest gross domestic product (GDP) figures, in a boost for Rachel Reeves amid the Iran war crisis.
It follows days of economic turbulence as Keir Starmer’s leadership crisis continues as the pound dropped and investors have been selling government bonds all as ministers resign. More tha 80 MPs have called for the prime minister to step down from his role.
Chancellor Rachel Reeves has said her choices “mean our economy is in a stronger position as we deal with the costs of the war in Iran.”
Most economists expected official figures to show the economy slamming into reverse in March, with a 0.2 per cent contraction following 0.5 per cent growth in February
But the outturn for the quarter as a whole was boosted by the performance in the first two months of the year, making it the strongest quarterly growth in a year.
The ONS also said GDP increased by 0.3 per cent in March, surprising economists who had been expecting growth to slow following the onset of the war in the Middle East.
ONS director of economic statistics Liz McKeown said: “Growth picked up in the first quarter of the year, led by broad-based increases across the services sector.
“Within that wholesale, computer programming and advertising performed particularly well.
“Production also grew slightly, while construction returned to growth, though only partly reversing weakness at the end of last year.”
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EY’s economic outlook implied that UK consumer spending growth will grind almost to a halt if the Iran war escalates and the crucial Strait of Hormuz shipping route remains closed for the rest of the year.
Peter Arnold, EY’s UK chief economist, said: “We expect the first quarter of this year to show GDP on a fairly promising trajectory, before flatlining in the second quarter and gradually recovering into 2027 as the global markets adjust.
“Energy supply constraints will push inflation higher and delay interest rate cuts, increasing the cost of borrowing for businesses and prompting some companies to reassess spending decisions.”
Forecasts from the Organisation of Economic Cooperation and Development (OECD) at the end of March delivered the biggest downgrade to Britain of all the major economies as the Iran war puts the UK in a particularly weak position.
The OECD predicted that gross domestic product (GDP) will be 0.5 percentage points lower in 2026 than prior forecasts, at 0.7 per cent – the biggest cut to the growth outlook of all the countries in the G20.
It also puts the UK at second lowest in the G7 in terms of economic growth this year, behind only Italy.
Concerns were rooted in the soaring energy prices, the lacklustre performance of the UK’s economy last year, as well as the reliance on imported gas.
The OECD forecast the UK would see inflation jump to 4 per cent this year, up from 3 per cent in the latest official figures.
The chancellor said in a statement: “The choices I have made as Chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran.
“Now is not the time to put our economic stability at risk.
“To do so would leave families and business worse off.
“Instead, this Government is getting on with the job of building an economy that is stronger, more resilient and prepared for the future.”
