UK economy expected to show signs of Iran war impact as fuel prices soar

UK economy expected to show signs of Iran war impact as fuel prices soar UK’s economy grew better than expected before the breakout of the Iran war - Bookmark - CommentsGo to comments Britain’s economy is poised to reveal the impact of the Iran war this Friday, with official figures for April expected to show a sharp contraction following a surprisingly robust start to the year. The Office for National Statistics (ONS) is anticipated to report the initial signs of a household squeeze, as the conflict drove fuel prices upwards. Most economists are forecasting a 0.1 per cent month-on-month decline in output for April, marking a significant reversal from the 0.3 per cent growth recorded in March. Already, April’s retail figures have indicated a substantial downturn, with sales plummeting by 1.3 per cent – the fastest rate in nearly a year. This decline was attributed to soaring petrol and diesel costs hitting fuel sales, alongside a weakening demand for clothing. A considerable portion of this sales reversal is also believed to stem from households having pre-emptively stocked up on fuel in March as pump prices began to climb. Motor fuel sales alone saw a dramatic 10.2 per cent plunge in April, the largest fall since November 2020. This is set to significantly depress the dominant service sector’s performance for the month, leaving overall gross domestic product (GDP) well below March’s growth levels. March’s out-turn helped drive growth of 0.6% overall in the first quarter of 2026, which was far better than expected. But the strong growth is likely to start fading throughout the second quarter, according to experts. Deutsche Bank chief UK economist Sanjay Raja said: “After a super strong start to the year, we expect the UK to see some course correction in the second quarter. “Indeed, with the energy shock from the Iran conflict in full swing, household incomes will likely be squeezed. “The cost of living and the cost of doing business will have likely increased, weighing on activity and investment.” He said he is not expecting a “big drop-off in momentum just yet”, but is forecasting GDP to edge down by around 0.1% month-on-month in April as the effects take hold. Mr Raja added: “We continue to think activity will remain subdued as the energy shock catches up with households and businesses, while domestic political uncertainty likely ramps up over the summer.” Pantheon Macroeconomics experts are more pessimistic, forecasting a 0.2% monthly decline in GDP in April, while Investec Economics is expecting the economy to remain flat. Investec economist Ellie Henderson said: “Despite challenging global economic conditions, the UK economy managed to expand by 0.3% on the month in March, surpassing expectations. “Although the growth in output was fairly broad-based, some of the strength could be attributed to consumers and firms bringing forward certain purchases in anticipation of subsequent price rises as the shock of higher energy prices filter through. “This frontloading might have also lifted output in some areas in April, but ultimately its effect will be temporary and will lead to weaker numbers thereafter as inventories are then run down.” She added: “We anticipate some weakness in broader discretionary spend in April, which is likely to have impacted spending on food services, accommodation and arts.” Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments