UK economy shrunk in April as Iran war hits GDP growth
The size of the UK economy fell by 0.1% in April as global volatility holds back growth, official figures show.
The UK economy shrunk in the month to April, fuelled by a retreat in the vital services sector, as the effects of the Iran war started to bite.
The 0.1% contraction is the first time the UK economy has posted negative growth figures since August 2025, the Office for National Statistics (ONS) found.
GDP growth had been strong in the first quarter of 2026, with the economy expanding by 0.6%, showing surprise resilience against the Iran crisis.
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But now the full scale of the economic disruption from the war is starting to be seen.
Official data shows the April contraction was driven by a 0.2% fall in the services sector, which accounts for around 81% of the UK’s economic output.
Within this sector, the arts, entertainment, and recreation subsector fell the most (down 0.5%) thanks to a 4.9% fall in sports and recreation activities.
The ONS said some of the fall could be attributed to the cancellation of “multiple sporting events in the Middle East affecting the output of UK-based businesses”.
The contraction was partially offset by a 0.1% rise in the construction sector. Meanwhile, the production sector showed 0% growth.
In terms of quarterly GDP growth, the figures show the size of the economy has increased by 0.7% in the three months to April, up from 0.6% in the three months to March.
Figures like these have long been anticipated by experts. Many were surprised at how resilient the UK economy was in the first quarter of 2026, but the scale of the economic disruption from the Iran war is now showing itself.
Chancellor Rachel Reeves blamed the impact of the war for the disappointing growth 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.
Where will GDP growth go in the rest of 2026?
Though the economy had shown resilience despite the impact of the war in the first quarter, most economists doubt we will see any strong growth for some time.
The Iran war, which started on 28 February, has prompted a rise in global prices, largely through the increased price of oil and gas as the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has been mostly blockaded since February.
Motorists have already been feeling the pain as the price of petrol and diesel is up around 23.9p and 36.4p respectively since the war started and households will also be hit with a 13% increase in energy bills from July.
As each of these lead to price increases, most economists think inflation will rise over the course of this year, reversing previous predictions that it would fall this year.
Stuart Clark, portfolio manager at Quilter, said: “We expect the economy to continue to fade as the year goes on, and particularly for as long as there is no lasting peace deal in the Middle East. Even if a deal is to materialise, costs have increased and are unlikely to come back down to levels seen prior to the conflict, and as such growth will be constrained regardless.
“With higher energy costs hitting businesses, and a rise in the energy price cap looming for households, growth is likely to grind to a halt once again,” he added.
The Bank of England’s Monetary Policy Committee (MPC), the panel of 9 experts who meet every six weeks to decide whether to raise, hold, or cut interest rates, will be watching the GDP figures closely.
The MPC next meets on 18 June and most experts expect they will hold interest rates at 3.75% for the fourth time in a row.
