UK Economy Grows 0.6% in Q1 Despite Early Iran War Impact

Britain's economy grew faster than expected in March, marking the first effects of the Iran war.

The Office for National Statistics reported 0.6% growth across the first three months of the year. Retail and construction rebounded to lead the expansion.

Analysts forecast weaker growth in coming months as the Iran conflict's effects spread. Economists had predicted a March contraction from higher fuel prices after the Strait of Hormuz closure.

Some pointed to "front loading," with businesses and consumers advancing activity before expected supply shortages or price hikes. Car sales and rentals showed this pattern.

The services sector drove the quarterly gain, aided by wholesale, computer programming and advertising, the ONS said. Construction also returned to growth, "though only partly reversing weakness at the end of last year," said Liz McKeown, the ONS director of economic statistics.

Chancellor Rachel Reeves told the BBC she would detail more support next week for families and businesses hit by the war. "The economy is growing strongly, and because of that growth we'll be able to do more to invest in our public services and to support families and businesses with the cost of living," she said.

Reeves added, in a nod to speculation about the prime minister's position: "We shouldn't put [economic stability] at risk by plunging the country into chaos at a time when there is conflict in the world but also at a time when our plan to grow the economy is starting to bear fruit."

Yael Selfin, chief economist at KPMG, said the Iran war's impact would hit harder in the second quarter. "Households are under renewed pressure as energy and petrol prices climb. Food costs are also expected to rise, with disruptions to fertilisers and other essential inputs," she said.

GDP data face future revisions. The Office for National Statistics cut February's growth estimate from 0.5% to 0.4% and revised January's from 0.1% to zero, even as March beat forecasts.

In Chelmsford, Essex, siblings Kennedy and Boston Mace run a play centre. Families there are trimming spending on extras like birthday parties. "We've got our own children so we appreciate how expensive a day out can be," Boston said. "Everything's going up… we've got a limit on what we can charge so the profit margin is getting smaller and smaller."

Kennedy noted more visitors pay for activities but skip food. "Which is understandable … money's a lot tighter."

Boston said the centre has survived the Covid pandemic, a fire, a flood and a theft. But "this seems [to be] the most difficult period we've had" in 13 years.