The British economy experienced a contraction in April, marking the first decline in eight months, as geopolitical events, particularly the ongoing Iran war, reportedly began to exert pressure on specific sectors.
Figures released by the Office for National Statistics (ONS) indicate that Gross Domestic Product (GDP) decreased by 0.1 per cent in April. This represents a notable reversal from the growth observed in preceding months, with March recording a 0.3 per cent expansion and February seeing a 0.4 per cent increase.
The primary driver behind April’s economic slowdown was a 0.2 per cent fall in the services sector. This decline was partially mitigated by positive performance in other areas, as the construction sector grew by 0.1 per cent, and manufacturing output expanded by 0.4 per cent. The ONS specifically noted that the services sector’s performance was negatively impacted by a significant drop in arts, entertainment, and recreation, largely due to the cancellation of numerous sporting events in the Middle East linked to the conflict.
Broader economic indicators also suggest that the conflict has led to increased energy prices, with reports of Iran closing the Strait of Hormuz, a crucial global shipping route, contributing to higher fuel costs.
Chancellor Rachel Reeves acknowledged the economic ramifications, stating: “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. This is not a war we wanted or joined, but one that will have an impact at home.”
“The choices I have made as chancellor mean our economy is in a stronger position to deal with the costs of the war, and we are getting on with the job of building a stronger and more secure economy.”
Despite the monthly contraction, the broader economic trend for the three months leading up to April showed overall growth. According to the ONS, GDP expanded by 0.7 per cent over this period.
Liz McKeown, ONS director of economic statistics, provided context on the figures, stating: “The economy grew in the latest three months as a whole, reflecting strong growth in February and March. This was despite April showing a small fall.”
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Luke Bartholomew, Deputy Chief Economist at Aberdeen, provided further commentary. He said;
“After March’s surprisingly strong GDP data, some pullback in April was always likely. And the series is very volatile month to month. But the 0.1% contraction in April is consistent with other data which suggest the economy slowing sharply going into Q2 and that recession risks are elevated. That economic weakness helps explain why the Bank of England is very unlikely to follow the ECB’s decision to hike at its meeting next week, and we expect rates to remain on hold for the rest of the year. But it may be that UK economic data has more of a backseat role for the time being, with investors probably more focussed on both geopolitics around the potential for an Iran deal, and domestic politics around the fate of the prime minister.”
Economists are now closely monitoring whether this April contraction signals a more significant slowdown in the second quarter of the year, with some forecasters downgrading their expectations for the UK economy due to persistent higher energy prices and ongoing geopolitical uncertainty.
