Chancellor Rachel Reeves attributed the economic downturn in the UK to the aftermath of the Middle East conflict, as new data from the Office for National Statistics revealed a 0.1% contraction in gross domestic product (GDP) in April. This decline marked a sharp reversal from the 0.3% growth experienced in March and the 0.4% growth in February.
Reeves emphasized that prior to the Middle East conflict, the economy was performing better than anticipated, with higher growth rates and decreasing inflation. Despite not seeking or joining the war, she acknowledged its domestic repercussions. Reeves expressed confidence in the government’s economic strategy, citing recent upgrades in growth forecasts by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD).
The decline in GDP was primarily driven by a 0.2% decrease in the services sector, partially offset by a 0.1% increase in construction and a 0.4% growth in manufacturing. Over the less volatile three-month period leading to April, the economy expanded by 0.7%.
The ONS highlighted that the performance of the crucial service sector was adversely affected by a 4.3% decline in arts, entertainment, and recreation, with the sports industry witnessing a 9.1% drop in output due to the cancellation of various sporting events in the Middle East amid the conflict.
The ongoing Iran war has also impacted other sectors, as recent retail data showed a significant decline in sales, particularly in fuel sales due to soaring petrol and diesel prices. The Bank of England is expected to maintain its base rate at 3.75% during its upcoming Monetary Policy Committee meeting.
Economists anticipate that following a robust start to the year with 0.6% GDP growth in the first quarter, economic growth is likely to taper off throughout the remainder of 2026. Opposition figures like Daisy Cooper and Paul Nowak criticized the government’s handling of the situation, calling for urgent measures to support households and businesses facing financial pressures.
Financial experts predict a slowdown in growth for the upcoming quarters, with concerns about a potential recession looming. Uncertainty surrounding geopolitical events, rising household costs, and a challenging labor market are expected to continue impacting both consumer spending and business investments in the near future.
