UK economy contracts as Iran war bites

The UK economy shrank slightly, as fuel price rises caused by the Iran war hit spending, new official figures show.

Gross domestic product (GDP) - a measure of everything produced in the economy - contracted 0.1% in April according to data from the Office for National Statistics (ONS), the first monthly fall since August.

Initially, in the first month of the conflict between the US and Israel and Iran, GDP rose faster than expected, potentially impacted by companies' reaction to the Iran war-related supply disruption.

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On a three-monthly basis, from February to April, the economy grew 0.7%, marking the fifth consecutive period of three-monthly growth.

But the April contraction came as diesel prices reached their Iran war peak, according to figures from the RAC. Petrol prices also soared.

And by April, some oil and wholesale gas reserves had been depleted, and purchasers were having to pay high prices as the vital Strait of Hormuz waterway was effectively shut.

In normal times, a fifth of the world's oil and liquefied natural gas (LNG) supplies are transported through the strait, but attacks on tankers have made it largely impassable.

War blamed

Chancellor Rachel Reeves centred her reaction to the figures on the Iran war impacts.

"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," she said.

"The choices I have made as chancellor mean our economy is in a stronger position to deal with the costs of the war", she added.

A common theme raised by businesses, according to the ONS, was the increase in prices because of the Middle East conflict and an associated impact on turnover.

Why?

The monthly shrinking came due to a 0.2% fall in the largest part of the economy: services, the ONS said.

The contraction was not larger due to a 0.1% rise in construction, while production showed no growth.

Across the three months, however, the services sector was expanding as computer programming, marketing and wholesale companies performed particularly well, the ONS's director of economic statistics, Liz McKeown, said.

Construction also showed signs of recovery after what the ONS said was a weak winter for the industry.

Worse to come?

High fossil fuel costs could dampen economic activity further.

"Underlying growth will slow from here, even if there is a deal in Iran", said Thomas Pugh, chief economist at consulting firm RSM UK.

"Indeed, higher energy prices and borrowing costs along with a renewed bout of political uncertainty, are likely to conspire to bring growth almost to a standstill for the rest of the year," he said.

(c) Sky News 2026: UK economy contracts as Iran war bites