The UK’s economy contracted in April, with the Office for National Statistics (ONS) reporting a 0.1% month-on-month dip as the Iran war began to bite on business conditions. Firms cited higher costs and weaker turnover linked to the conflict in the Middle East, underscoring a fragile start to 2026. The monthly decline marks the first drop since August of the previous year and comes after economists had anticipated a softening following stronger-than-expected growth in March.
Looking at the three-month measure to April, the ONS said the economy expanded by 0.7% from the previous three months, a gauge usually viewed as less volatile than the monthly figure. Market participants and policymakers have signaled caution as higher energy costs feed through to consumer prices and business outlays.
The war's effect on energy markets was evident as the conflict contributed to volatility in oil prices. Brent crude touched as high as $120 per barrel, before retreating to about $86 on renewed hopes for a resolution. The rise in crude values has fed through to higher petrol and diesel prices in the UK, while household energy bills are expected to climb with the energy price cap rising in July.
Yael Selfin, chief economist at KPMG UK, noted that while quarterly growth was positive, the April contraction highlights weaker outlook ahead. The monthly drop, she said, signals renewed fragility for the economy, with pressure on both consumers and businesses likely to persist in coming months. Consumers are already adjusting spending plans and saving more in response to higher energy costs, potentially dampening near-term activity. Firms face the challenge of rising input costs, which may constrain margins as demand moderates.
In response to the data, Chancellor of the Exchequer Rachel Reeves argued that the war will have an impact at home, though she stressed that the economy remained in a stronger position to cope with the costs of the conflict. Opposition voices criticised the government’s handling of the economic backdrop, while analysts suggested that the Bank of England could keep rates unchanged in the near term given the softness in activity.
The ONS also highlighted that certain services, including arts and entertainment, were dragged lower in April, with some sector losses linked to the war’s disruption of international events. Manufacturing, transport and travel services were cited as other areas affected by the conflict’s spillovers. Overall, the data point to a more cautious outlook for the economy as the year unfolds, with energy-price dynamics and geopolitical tensions likely to remain central to the domestic growth path.
