New data released on Friday shows the UK economy contracted by 0.1% in April, impacted by the ongoing conflict involving Iran.

The primary driver of the decline was a 0.2% drop in services sector output, partially offset by a 0.1% rise in construction. Industrial production was flat for the month. The figure matched the consensus forecast from a Reuters poll of economists for a 0.1% contraction.

Reviewing recent monthly performance: the economy saw zero growth in January, followed by growth of 0.4% in February and 0.3% in March, before turning negative in April.

How the Conflict is Impacting the UK Economy

A significant weakness within the services sector was the sports, recreation, and entertainment industry, which saw output plunge by 9.1%. The UK's Office for National Statistics noted it is rare for a single industry to exert such a substantial negative drag on both services output and real GDP.

The ONS indicated the downturn in this sector was partly linked to the Middle East conflict, with the cancellation of several sporting events directly impacting revenue for related UK businesses. Manufacturers, wholesalers, transport support service providers, and travel agencies all reported that the conflict led to reduced sales in April.

The ONS stated that businesses consistently reported the Middle East conflict was driving up prices for various goods, with core pressure on energy and fuel costs. Multiple firms indicated they felt a clear impact in April 2026 and expected negative effects to persist in the coming months.

Suren Thiru, Chief Economist at the Institute of Chartered Accountants in England and Wales, said the GDP contraction data significantly reduces the likelihood of a Bank of England interest rate cut next week, with the economy entering a damaging period of stagflation.

"This is the first tangible hit to the UK economy from the Iran conflict. With falling fuel consumption and a weak services sector, the growth momentum seen at the start of the year has completely stalled in April," Thiru said.

"Soaring fuel prices have completely reversed the UK's growth dynamic. In March, oil prices were still a tailwind for growth; by April, they had become a headwind. After stocking up in March, consumers sharply cut fuel consumption in the face of skyrocketing retail pump prices."

With the US-Iran conflict now exceeding 100 days, global energy supply constraints are re-emerging, contributing to renewed inflationary pressures.

The International Monetary Fund warned in April that among the world's major economies, the UK could suffer the most severe growth impact from the war.

As a net energy importer, the UK economy is particularly vulnerable to shocks in global energy supply chains. The IMF has downgraded its full-year growth forecast for the UK to just 0.8% for 2026, down from an initial projection of 1.3% at the start of the year.

On inflation, the UK's headline rate fell to 2.8% in April, primarily due to the national energy price cap set by the UK energy regulator.

However, from July, the UK's energy price cap will rise by 13%, allowing suppliers to pass on a portion of the increased oil and gas costs to consumers.