UK Economy Shrank in April as Iran War Started to Take Toll

4k({[ftn0]4]8()g)bquv1mf_media_dl_1.png Office for National Statistics

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(Bloomberg) — The UK economy contracted for the first time in eight months, an early sign of the damage wrought by war in Iran.

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Gross domestic product declined 0.1% following gains in the previous two months, the Office for National Statistics said Friday. The reading marked the first decline since August 2025 and was in line with the median forecast of economists.

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Services fell by 0.2%, with some firms hit by the cancellation of sporting events in the Middle East, the ONS said. The drop outweighed a 0.1% gain in construction and a 0.4% increase in manufacturing.

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The figures set the stage for a tepid second quarter as businesses and consumers grapple with higher energy costs and borrowing rates triggered by the Iran war.

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It follows a bumper first quarter when Britain enjoyed the strongest growth of any Group of Seven economy. However, hopes of lower interest rates have flipped to expectations of hikes, while the boost to activity from businesses and households stockpiling to avoid higher prices in the early weeks of the conflict are beginning to fade.

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The report will reinforce the case of BOE policymakers who appear reluctant to rush into interest-rate rises in response to the energy shock triggered by the Iran war. The decision over when or whether to raise rates is a trade-off between inflation and weak demand, with officials such as Governor Andrew Bailey appearing to place more weight on the latter.

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The slowdown also adds to the pressure on embattled Prime Minister Keir Starmer, who is facing the prospect of a leadership challenge in the coming weeks.

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“This is not a war we wanted or joined, but one that will have an impact at home,” Chancellor of the Exchequer Rachel Reeves said, responding to today’s figures.

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Businesses said the conflict in the Middle East hit activity in April. Manufacturing, wholesale, warehousing, transport, accommodation and travel agencies all said the war had reduced turnover. Firms more broadly also expressed concerns about the increase in prices caused by the conflict.

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The powerhouse services sector was dragged down by administrative and support activities, which fell 2.2% on the month. Arts and entertainment also declined sharply, as some British businesses were impacted by the cancellation of sporting events in the Middle East, like Formula One in Bahrain and the Saudi Arabian Grand Prix, the ONS also said.

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Consumer-facing services also declined on the month, adding to evidence that the all-important British consumer is starting to feel the squeeze from the energy shock. Sport and recreation activities dropped 9.1%, while retail trade also contracted. 

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It chimes with recent official figures showing retail sales falling at the sharpest pace in over a year due to Britons making fewer car journeys to save on fuel. From clothes to home items, households pulled back spending across all categories except food in April.