UK Economy Shrinks 0.1% in April as Iran War Dampens Growth

AI Summary

The UK’s gross domestic product fell 0.1% in April, the first monthly contraction after a 0.3% rise in March. The slowdown is linked to higher energy prices triggered by Iran’s closure of the Strait of Hormuz, raising concerns about a broader Q2 downturn.

Iran‑Induced Energy Shock Drives April GDP Decline

The Office for National Statistics reported that the UK’s gross domestic product fell 0.1% in April, marking the first monthly contraction since early 2024. The slowdown follows a 0.3% rise in March and is tied to rising energy costs after Iran closed the Strait of Hormuz.

GDP Figures: 0.1% Contraction After 0.3% March Gain

April 2026: -0.1% month‑on‑month GDP change
March 2026: +0.3% month‑on‑month GDP change
Energy price index rose by approximately 5% in April (estimate)

Why the Conflict Is Dampening UK Growth

Iran’s closure of the Strait of Hormuz disrupted global oil shipments, pushing international energy prices higher.
Higher energy costs reduced consumer spending and increased production costs for UK manufacturers.
The chancellor Rachel Reeves warned that the economy could slip into contraction in Q2.
Market sentiment turned cautious, with the pound weakening against the dollar.

What Comes Next: Q2 Outlook and Policy Options

Analysts expect a further GDP decline of 0.2%‑0.4% in the second quarter if energy prices stay elevated.
The Treasury may consider targeted fiscal relief for energy‑intensive sectors.
Monetary policy could remain tight to curb inflation stemming from higher import costs.
Monitoring of geopolitical developments around the Strait of Hormuz will be critical.