UK economy defies Iran war forecasts with 0.3% growth

The UK economy recorded an unexpected 0.3% growth in March, according to official figures from the Office for National Statistics, defying widespread forecasts of a 0.2% contraction. This expansion occurred during the first full month of the Iran war, which began on 28 February 2026, suggesting that the geopolitical conflict has not yet significantly disrupted domestic economic activity despite soaring fuel prices resulting from the closure of the Strait of Hormuz.

Gross domestic product rose by 0.6% over the first quarter of 2026, a sharp improvement from the 0.1% growth recorded in the final three months of 2025. The Office for National Statistics attributed the quarterly performance to broad-based increases across the services sector, with computer programming and advertising industries performing particularly well. Construction also returned to growth during the period, contributing to the overall resilience of the economy.

The March figure stands in contrast to the consensus view among economists, who had anticipated a shrinkage in output. The Office for National Statistics also revised its previous estimates, noting that February GDP was 0.4%, down from an initial 0.5% estimate, while January was recorded at 0%, lower than the initial 0.1% figure. These adjustments highlight the volatility in early data but confirm that the economy maintained momentum through the initial shock of the conflict.

Retail sales rose in March, and the closely watched purchasing managers index for April showed an upturn in manufacturing production and services output. However, the Bank of England has issued warnings regarding the macroeconomic outlook, noting that inflation accelerated to 3.3% in March from 3% in February. The central bank cautioned that higher inflation, driven by energy supply shocks, may necessitate higher interest rates and could weigh on future growth if supply chains are disrupted.

Fergus Jimenez-England of the National Institute of Economic and Social Research noted that leading indicators are sending mixed signals as businesses adjust to the energy shock. He observed that while input price inflation has picked up sharply and job vacancies continue to fall, retail sales and purchasing managers indices have held up. Some of this strength may reflect firms and households bringing forward spending in anticipation of further price rises, rather than underlying demand strength.