The UK economy contracted by 0.1 per cent in April as soaring fuel prices linked to the Iran war squeezed household budgets and weighed on spending, according to figures published by the Office for National Statistics on Friday.
The contraction marks a sharp reversal from the strong start to the year. The economy had grown by 0.6 per cent in the first quarter of 2026, with March alone delivering 0.3 per cent growth — far outpacing expectations. Economists had been bracing for the slowdown, with most forecasters pencilling in a 0.1 per cent decline for April as the energy shock from the conflict began to feed through to the economy in earnest.
Deutsche Bank’s chief UK economist Sanjay Raja said the figures reflected the start of a “course correction” after the strong opening months of the year. “With the energy shock from the Iran conflict in full swing, household incomes will likely be squeezed,” he said. “The cost of living and the cost of doing business will have likely increased, weighing on activity and investment.” Other forecasters were gloomier still — Pantheon Macroeconomics had predicted a 0.2 per cent decline, while Investec Economics had expected the economy to remain flat. Investec economist Ellie Henderson noted that some of March’s strength may have reflected consumers and firms “bringing forward certain purchases in anticipation of subsequent price rises,” an effect she said would prove temporary.
The squeeze has been most visible at the petrol pump. Analysis by the RAC Foundation found that motorists have paid an additional £307 million for petrol and diesel since the conflict began on 28 February, with diesel prices reaching a three-year high during April. Brent crude has spiked by more than 15 per cent to over $80 a barrel, while global gas prices — on which the UK is particularly reliant — have nearly doubled. The disruption stems from Iran’s effective blockade of the Strait of Hormuz, through which around a fifth of the world’s oil and liquefied natural gas supplies normally pass, with attacks on tankers having rendered the waterway largely impassable.
Despite the scale of the impact on households, Chancellor Rachel Reeves rebuffed calls from MPs — including some on her own benches — for emergency support with energy bills, telling the Commons: “This is not a war that we started, nor is it a war that we joined… but it is a war that will have an impact on our country.” She said she would meet with supermarkets and banks later this week to discuss what assistance they could offer customers, and confirmed the Competition and Markets Authority would be given new powers to tackle price gouging.
The response drew sharp criticism from the opposition. Shadow Chancellor Mel Stride said: “Labour have no plan and hardworking families are paying the price. The chancellor must axe the fuel tax, drop the net zero dogma and open up the North Sea.”
Helen Miller, director of the Institute for Fiscal Studies, warned the disruption could extend well beyond April’s figures. “The conflict in the Middle East is already pushing up oil prices, gas prices and expectations for interest rates,” she said. “It could yet cause more far-reaching economic disruption.” The FTSE 100 fell 3.7 per cent amid the turmoil, according to the Associated Press.
Looking at the broader trend, analysts at Scope Markets noted that the three-month growth rate of 0.7 per cent still points to a “healthy” underlying trajectory despite April’s setback, though the Bank of England is now seen as increasingly likely to cut interest rates in August, with markets pricing in a 65 per cent probability of a reduction.
