The UK economy contracted by 0.1% in April, marking its first monthly decline since August last year, as the ongoing Iran war began to weigh on businesses, according to official data from the Office for National Statistics (ONS).
Some firms cited the Middle East conflict as a factor behind increased costs and reduced turnover. While economists had anticipated the contraction after a stronger-than-expected March, analysts caution that the economy is likely to slow further in the coming months.
The more stable three-month measure showed growth of 0.7% compared with the previous period. However, the monthly dip signals renewed fragility, with pressure on both consumers and businesses expected to persist.
The Iran war has effectively closed the Strait of Hormuz, a critical oil shipping route, sending crude prices soaring to $120 per barrel before settling to a three-month low of $86 on Friday amid hopes for a resolution. Higher oil prices ripple through the cost of goods and services across the economy.
Yael Selfin, chief economist at KPMG UK, said the April contraction "points to renewed fragility in the UK economy". Consumers face sharp energy bill rises and are cutting back on spending, while businesses struggle with higher costs and squeezed profit margins.
Chancellor Rachel Reeves acknowledged the war's impact, stating that prior to the conflict, growth was strong and inflation falling. Shadow chancellor Mel Stride criticized the government, saying it was "asleep at the wheel".
The ONS attributed the contraction mainly to a 0.2% decline in the services sector, particularly arts, entertainment, and sports, with some events in the Middle East cancelled. Manufacturing, transport, and travel businesses also suffered.
Ruth Gregory of Capital Economics expects the Bank of England to hold interest rates unchanged when it meets next week, with the weak economy likely keeping rates steady for the rest of the year. "The strong start to the year is now faltering," she said, predicting a standstill in the economy over the next two quarters.