UK Economy Shrinks 0.1% in April Amid Iran War Impacts

The U.K. economy shrank by 0.1% in the month to April, figures published on Friday showed, as the impacts of the Iran war continue to hamper growth.

A 0.2% contraction in services activity was cited as the main driver of the negative growth, with officials saying it had been partly offset by a 0.1% rise in construction output. Production output showed zero growth for the month.

Economists polled by Reuters had been expecting the British economy to contract by 0.1% month-on-month.

April's print followed growth of 0.3% in March, 0.4% in February and no growth in January.

One of the biggest contributors to the decline in services came from a fall of 9.1% in sports, amusement and recreation activities. The Office for National Statistics (ONS) said that this was the largest negative contribution from a single industry to both services output and real GDP growth.

Some of the sector's decline was attributed to the war, with the ONS noting that the cancellation of various sporting events in the Middle East had affected the output of U.K.-based companies.

Companies operating in the manufacturing, wholesale, transportation support, and travel agencies said that the conflict in the Middle East had contributed to reduced turnover in April.

"A common theme of the comments received was the increase in prices because of the Middle East conflict," the ONS said. "These comments were mainly for energy and fuel costs, with some suggesting an impact seen in April 2026 and also suggesting an impact for future months."

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the data made a rate cut from the Bank of England next week unlikely, with the GDP decline signaling a "damaging descent into stagflation."

"This decline is the first economic blow landed by the Iran conflict as falling fuel sales and slowing services output meant the U.K.'s early-year growth momentum stalled in April," he said.

"Skyrocketing fuel costs have noticeably altered the U.K.'s growth trajectory having flipped from a tailwind to growth in March to a headwind in April as motorists cut consumption in the face of surging pump prices, after frontloading purchases in March."

The U.S.-Iran war, which recently crossed the 100-day mark, has sparked supply constraints in global energy markets, prompting a resurgence of inflation.

The International Monetary Fund warned in April that the U.K. could see the biggest hit to growth from the war of any major economy.

As a net energy importer, the U.K. is particularly vulnerable to energy shocks that impact the global supply chain.

The IMF is now forecasting U.K. growth of just 0.8% in 2026, down from a previous forecast of 1.3% made at the beginning of the year.

In the U.K., headline inflation eased to 2.8% in April, which was largely attributed to a national energy price cap by Britain's energy regulator.

From July, the price cap will rise by 13%, allowing energy providers to pass on some of the elevated costs of oil and gas.