Iran conflict threatens UK recovery

The UK economy grew more strongly than expected in the first quarter of 2026, signaling resilience at the start of the year even as rising geopolitical tensions and higher energy costs threaten to slow momentum in the months ahead.

According to figures released Thursday by the UK’s Office for National Statistics (ONS), gross domestic product (GDP) increased by 0.6% between January and March. The economy also expanded by 0.3% in March alone, following a revised 0.4% rise in February.

The quarterly growth rate marked a notable improvement from the 0.2% expansion recorded in the final quarter of 2025 and matched analysts’ forecasts.

Services Sector Leads the Recovery

The ONS said growth was driven largely by the services sector, which accounts for the majority of the British economy. Services output climbed 0.8% during the quarter, while production increased 0.2%.

Construction activity also rebounded, rising 0.4% after previous weakness late last year.

ONS Director of Economic Statistics Liz McKeown said the first-quarter improvement reflected “broad-based increases across the services sector,” with smaller gains seen in production and construction.

Despite the encouraging figures, the UK economy continues to face long-term structural challenges after years of disruptions caused by Brexit-related uncertainty, the Covid-19 pandemic, and the war in Ukraine.

Still, the latest data suggests Britain outperformed both the United States and several major European economies during the opening months of 2026.

Middle East Conflict Raises Economic Risks

Economists cautioned that the positive first-quarter performance may not continue as the conflict involving Iran and the United States intensifies.

The effective closure of the Strait of Hormuz — a critical global shipping route for oil and gas — has sent energy prices sharply higher and disrupted international supply chains. Because the UK relies heavily on imported energy, rising fuel costs are already contributing to inflationary pressure.

The Bank of England has warned that the economic impact will depend heavily on how long the conflict continues. Financial markets are increasingly expecting interest rate hikes later this year as inflation remains elevated.

Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, said the latest GDP figures mostly reflected economic conditions before the recent escalation in the Middle East.

He noted that business confidence has weakened, inflation in production costs has increased, and job vacancies are declining. However, he added that consumer spending and business activity indicators still point to an economy adjusting to new pressures rather than entering a full downturn.

Government Defends Economic Strategy

UK Chancellor Rachel Reeves said the stronger growth figures demonstrated that the government’s economic strategy was working.

Reeves argued that recent policy decisions had placed the economy in a better position to withstand the financial impact of the Iran conflict, emphasizing the importance of maintaining economic stability during a period of global uncertainty.