Chancellor Rachel Reeves attributed the economic downturn in the UK to the aftermath of the Middle East conflict, as new data from the Office for National Statistics revealed a 0.1% contraction in gross domestic product for April, a sharp decline from the growth seen in March and February.
Reeves mentioned that prior to the conflict, the economy was performing better than expected, with decreasing inflation and higher growth rates. Despite not actively seeking or participating in the war, its repercussions are now being felt domestically.
She emphasized that the economic strategy in place is robust, as evidenced by positive revisions in growth forecasts by both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) recently. Reeves stated that the decisions made under her leadership as Chancellor have positioned the economy to withstand the challenges posed by the conflict, emphasizing the ongoing efforts to reinforce a resilient and stable economic foundation.
The decline in economic output was primarily driven by a 0.2% decrease in services, although there was a slight uptick in construction by 0.1% and manufacturing by 0.4%. Over the less volatile three-month period leading up to April, the economy expanded by 0.7%.
According to the ONS, the service sector performance was impacted by a notable 4.3% decline in arts, entertainment, and recreation, with the sports industry experiencing a significant 9.1% reduction in output due to the cancellation of sporting events in the Middle East amid the conflict.
These developments reflect the broader impact of the Middle East war on various sectors, with recent retail data showing a notable decline in sales, particularly in fuel purchases due to escalating petrol and diesel prices.
Market expectations suggest that the Bank of England will maintain its base rate at 3.75% during its upcoming Monetary Policy Committee meeting. Economists anticipate a prolonged period of stable rates, with a potential downward adjustment later in the year based on market conditions.
Analysts anticipate a gradual slowdown in economic growth throughout the remainder of 2026 following a strong start to the year. Various stakeholders have expressed concerns about the repercussions of the conflict on British households and businesses, emphasizing the need for proactive measures to mitigate the economic challenges ahead.
