The UK economy expanded 0.6% in the first quarter of 2026, the fastest quarterly growth rate in more than a year, defying analyst expectations of a slowdown linked to the war in Iran and delivering a short-term political boost to Chancellor Rachel Reeves at a moment when Prime Minister Keir Starmer faces growing calls from within the Labour Party to resign.
The Office for National Statistics confirmed the 0.6% quarterly expansion on Thursday, accelerating from revised growth of just 0.2% in the previous three months, with the services sector, the largest component of the UK economy, driving the result with a 0.8% quarterly increase, while production rose 0.2% and construction added 0.4%.
Monthly GDP data for March came in at 0.3% growth, beating expectations that ranged from a flat reading to a decline of 0.2%, reflecting the degree to which the UK economy continued to expand in the weeks immediately following the outbreak of the US-Iran conflict on February 28.
Reeves described the figures as evidence that the government’s economic plan is working, though economists were swift to note that first-quarter data largely reflects conditions in January and February, before the Strait of Hormuz closure began pushing energy prices sharply higher and squeezing household and business budgets.
Fergus Jimenez-England of the National Institute of Economic and Social Research acknowledged the “relatively strong outturn” but described it as “largely old news,” warning that business confidence has taken a hit since the conflict began, input price inflation has risen, and job vacancies are falling, all signals of deteriorating conditions that will not appear fully in the data until the second-quarter figures.
The Bank of England, which has signalled it is watching the Iran conflict’s impact closely, is now expected by many analysts to raise interest rates later in 2026 as inflationary pressure from elevated oil and gas prices builds throughout the economy, with UK gilt yields having already moved above 5% on the 10-year benchmark as bond markets priced in the prospect of tighter monetary policy.
Adding to the economic uncertainty, Starmer has faced sustained calls to step down following the Labour Party’s poor showing in local elections earlier in May, with bond markets reacting negatively to speculation about a potential leadership change that could result in a more fiscally expansive successor loosening the spending constraints Reeves has sought to maintain.
The visible trade deficit widened to £27.22 billion in March, according to separate ONS data, reflecting a gap between goods exports and imports that the Iran conflict has complicated further by disrupting the normal flow of traded goods through Middle Eastern shipping lanes.
