UK economy jumped above forecasts before Iran war
The UK economy was growing ahead of expectations before the war in the Middle East erupted, official data has shown.
The Office for National Statistics (ONS) said GDP grew by 0.5 per cent over February, though City analysts have suggested the figures are “too good to be true” given trends seen in recent years.
In the three months leading up to March, the month that led to a halt in trade of critical goods such as oil across the Strait of Hormuz, the UK economy grew by 0.5 per per cent.
Economists polled by Bloomberg predicted that growth on the month was set to be 0.1 per cent while the quarterly figure would come in at 0.2 per cent.
The ONS said the services sector expanded 0.5 per cent over three month and production grew 1.2 per cent while construction was down two per cent.
“Growth increased further in the three months to February led by broad-based increases across services,” said Grant Fitzner, chief economist at the ONS.
“Within services, growth was driven by wholesaling, market research, hospitality, and publishing, which all performed well in the three months to February.”
Chief secretary to the Treasury James Murray said: “Growth only happens when the economy is on solid ground. That’s why in a changing world our plan to restore stability, boost investment and deliver reform is the right one to build a more stronger more resilient Britain.
“At the IMF meetings in Washington the Chancellor has set out how we will go further and faster to boost Britain’s competitiveness and build a stronger, more resilient economy, keeping costs down for families and businesses and taking back control of our energy costs as today we cut bills by up to 25 per cent for 10,000 British businesses.”
Economists have said that the surprise figure would have been pushed into the rear-view mirror, with The Institute of Chartered Accountants in England and Wales’ Suren Thiru suggesting the ONS would soon present data for a “miserable March”.
UK economy vulnerable to Iran war
The figures will give Treasury officials some hope as they scramble to work out the impact of the Iran war on the UK’s economic outlook.
But this week has been particularly gruelling for the Chancellor as she has come under fire over a shortfall in funding for defence.
Her trip to Washington this week for International Monetary Fund meetings was also marred by damning forecasts for the UK economy.
The organisation revised down growth for this year by 0.5 percentage points, more than any other G7 nation.
The IMF had previously predicted the UK economy to grow 1.3 per cent in 2026, a slower pace than last year, but it now pencilled in a rise in GDP of just 0.8 per cent.
The National Institute of Economic and Social Research’s Fergus Jimenez-England said the war had “likely pulled the rug on this momentum”.
WPI Strategy chief economist Martin Beck said: “Even in the event of a benign outcome, the damage from the past six weeks won’t simply unwind immediately.
“The implication is that the UK faces a more stagflationary outlook than previously anticipated, with weaker growth and more persistent inflationary pressure over the second half of the year.
‘Too good to be true’
ING’s James Smith said the data was consistent with trends seen over recent years where the UK economy has fired up in early parts of the year before fizzling out.
“If it sounds too good to be true, then it probably isn’t,” Smith said.
He said the 0.5 per cent rise in GDP over February was “consistent with a trend which dates back to 2022, where growth has tended to come in much stronger in the first quarter than over the rest of the year”.
“Most of the latest surge, we suspect, is noise.”
“Suffice to say, all of this is old news anyway, given the crisis we find ourselves in today,” he added.
Inflation warnings
UK inflation is also set to be the joint-highest this year alongside the US, projected to be 3.2 per cent.
The US economy was also expected to suffer from inflation of 3.2 per cent while other G7 countries were set to have lower price growth levels this year.
The findings followed similarly damning figures from the Paris-based OECD. Economists suggested the UK economy would have the second lowest rate of growth in the G7 and second highest level of inflation.
Reeves said the “best economic policy” was to get involved countries in the Middle East to de-escalate the war in Iran.
“We are a net importer of gas, which does mean that we are impacted by the conflict in the Middle East, which is why I do come with this message loud and clear, along with the 10 other countries that have signed this statement today, that we want to see a de-escalation of the crisis.”