UK economy contracts in April amid energy turmoil linked to Iran conflict
Poinews.com – Latest figures from the Office for National Statistics (ONS) reveal a 0.1% contraction in the UK economy during April, marking the first decline in monthly output since the summer of 2025. This development signals growing concerns that the ongoing Iran war is beginning to impact British economic activity. Services, which make up the largest portion of the economy, experienced a 0.2% monthly drop, while manufacturing remained stable and construction saw a modest 0.1% increase.
Despite the April contraction, the three-month growth rate from January to April showed a 0.7% expansion, continuing a streak of five consecutive periods of positive growth. However, analysts caution that this uptrend may not be sustainable, with the first quarter appearing to mask underlying challenges. The sports, leisure, and recreation sector faced the steepest decline, falling by 9.1%, partly due to canceled events in the Middle East affecting UK-based firms.
Consumer spending and fuel costs weigh heavily
Consumer-facing services declined by 0.5% in April, with retail trade shrinking 1.3%. Meanwhile, fuel consumption dropped nearly 10%, as households and businesses adjusted to higher energy prices. Sanjay Raja, Deutsche Bank’s chief UK economist, noted that this energy shock is intensifying financial strain on consumers and companies.
“The three-month growth has persisted, but the first quarter feels like a misleading indicator. With US-Iran tensions unresolved, economic conditions are expected to stay challenging for the foreseeable future,” said Stuart Clark, portfolio manager at Quilter.
Raja highlighted that manufacturing stood out as a rare positive trend, rising 0.4% driven by pharmaceuticals and basic metals. He suggested this growth might reflect companies stockpiling supplies amid heightened geopolitical risks. Separately, the ONS reported that 40% of trading businesses faced rising input costs in April, the highest level since December 2022, underscoring inflationary pressures.
Policy challenges and future forecasts
The data is likely to complicate the Bank of England’s policy decisions, as officials balance rising prices against signs of weakening growth. “A stagflationary trend is evident, and raising interest rates now could be counterproductive, yet inflation remains the key factor influencing market expectations,” Clark noted, referencing the upcoming rate decision next Thursday.
“Activity will continue to slow as real incomes are squeezed by higher energy costs and increasing borrowing rates,” Raja warned, while still projecting a 1% annual growth forecast for the UK, outperforming most G7 economies.
