UK economy unexpectedly grew 0.6% in first quarter of the year despite Iran war

The UK economy unexpectedly grew by 0.6% in the three months to March, fuelled by the services sector, despite disruption from the Iran war.

It marks the fastest economic growth the UK has experienced for a year and is up by 0.4 percentage points from growth in the final quarter of 2025, figures from the Office for National Statistics (ONS) show.

On a month-on-month basis, UK GDP grew by 0.3% between February and March.

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Quarterly growth was driven by strong performance in the services sector, which makes up around 75% of the UK’s economic output, which expanded by 0.8% in the three months to March.

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The construction sector also grew by 0.4%, marking the first time following construction output rose after five consecutive quarterly falls.

Production output grew by 0.2% in this period, though this is down from growth of 1.1% in the three months to February.

On a month-on-month basis, UK GDP grew by 0.3% between February and March.

Output from the services and construction sectors grew by 0.3% and 1.5% on the month, respectively, while production output fell by 0.2%.

Commenting on the latest GDP data, chancellor Rachel Reeves said on X: “Today’s strong growth figures show the government has the right economic plan.

“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.”

The figures have come as a surprise as most economists had expected GDP growth to slow considerably as the country started to feel the impact of the Iran war.

Some had even expected the economy to contract by around 0.2% in the first quarter of the year thanks to higher oil and energy prices.

Will GDP growth continue for the rest of the year?

Although March’s GDP data showed resilience, the chances of strong growth continuing through the year is low.

The elephant in the room here is the Iran war. While the damage to the UK economy seems to have been limited in the first month, the war is still ongoing and the global oil and energy trades continue to disrupt the economy.

The Strait of Hormuz, a narrow waterway through which around 20% of the world’s oil is transported, has remained closed since 28 February as hopes for a swift end to the war and return to normal trade are scuppered.

With the oil and energy trade disrupted, inflation is expected to soar this year.

Price growth rose by 0.3 percentage points in March and analysts expect that rising inflation is set to continue, especially considering most expected household energy bills will soar when the new Ofgem price cap comes into effect in July.

Higher inflation will likely mean the Bank of England will halt any future interest rate cuts, as they have done in their last two base rate meetings.

Fewer rate cuts, higher price growth and increased economic disruption thanks to the war all led the International Monetary Fund to slash the UK’s growth forecast to just 0.8% for 2025, down from the 1.3% it predicted in January.

That means we may start to see the economy struggle more in the following months.

Rob Morgan, chief investment analyst at Charles Stanley, said: “The consequences of the conflict in the Middle East are still unfolding, and following a good start to the year the UK economy could be stopped in its tracks.

“The sudden increase in global oil and gas prices threatens to reignite inflation, drain household finances, and squeeze company profits, which is set to put the skids under a buoyant start to the year.”

UK GDP tends to follow a pattern where it looks healthy for the first months of the year before slowing down.

David Goebel, investment specialist at Evelyn Partners, said: “In recent years, early-year growth has tended to be front-loaded and followed by a slowdown, and there is a concern this year could follow in that pattern.

“With energy costs rising from the Iran conflict, which has kept Brent crude well above $100 a barrel, the impact in subsequent quarters will be marked. Full-year 2026 growth is currently estimated at just 0.8%, and could be much lower in the event of continued oil price escalation.”