UK economy shrinks in April as Iran war starts to take its toll

BRITAIN’S strong start of the year came to an end in April as the impact of the Middle East shock began to filter through the economy.

Gross domestic product declined 0.1 per cent following gains in the previous two months, the Office for National Statistics said on Friday (Jun 12). The reading was in line with the median forecast of economists.

Services fell by 0.2 per cent, offsetting gains in manufacturing and construction.

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.

It follows a bumper Q1 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.

SEE ALSO

UK sets out £1.1 billion AI hardware plan with supercomputer, chip funding

UK jobs slump deepens as Starmer woes add to headwinds, REC says

UK’s biggest retailers cut 18,000 jobs amid rising taxes and wages

Growth spurt for UK factories will be short-lived, PMI shows

Starmer vows action to avoid ‘lost generation’ of jobless youth

More

Asean Intelligence

Get insights into businesses across South-east Asia

Get the free report

The report will reinforce the case of Bank of England 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 Andrew Bailey appearing to place more weight on the latter.

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. BLOOMBERG