UK grows 0.6% in the first quarter — before the Iran war really started to hit global economy
- The U.K. economy expanded 0.6% in the first quarter, in line with economists' expectations.
- Growth was led by broad-based increases across the services sector, the ONS said.
- The data will provide a ray of comfort for the Labour government, which is under pressure.
The U.K. economy grew 0.6% in the first quarter, according to preliminary figures from the Office for National Statistics on Thursday.
It matches what economists polled by Reuters expected for the January-March period, and follows revised growth of 0.2% in the fourth quarter.
"Growth picked up in the first quarter of the year, led by broad-based increases across the services sector," Liz McKeown, director of Economic Statistics at the ONS, commented on X on Thursday.
Production also grew slightly, she added, and while construction returned to growth, that was only partly reversing weakness at the end of last year.
There were indications that the Q1 data could be positive after a revised 0.4% expansion in February, but the Iran war is expected to weigh on macroeconomic data going forward. The economy grew 0.3% in March, the ONS said Thursday.
The conflict between Iran and the U.S. has since put global energy supply chains under severe strain because of the effective closure of the Strait of Hormuz maritime passage, through which around 20% of the world's oil and gas was transited before the war.
'Old news'
The U.K., a net energy importer, has already seen consumer prices rise during the war, largely driven by rocketing fuel costs.
The Bank of England, which has said that the severity of the hit to the British economy will depend on how long the war lasts, is expected to hike interest rates later this year.
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, commented Thursday that while the first-quarter GDP data reflected a "relatively strong outturn ... it largely reflects old news."
"Although growth held up in March, there are signs of underlying weakness in the wake of conflict in the Middle East. Business confidence has taken a hit, input price inflation has risen, and job vacancies are falling," he noted in emailed analysis.
"At the same time, today's positive surprise alongside resilience in spending data and PMIs suggests that the U.K. economy is in a period of adjustment rather than outright downturn," he added.
Political crisis
Adding to economic uncertainty in the U.K., Prime Minister Keir Starmer has faced calls to step down in the last week following the ruling Labour Party's dismal performance in local elections a week ago.
While Starmer has vowed to remain in office for now, he remains vulnerable to leadership challenges with a cohort of over 90 Labour lawmakers wanting him to resign.
Bond markets have not reacted kindly to the possibility of a change in leadership that could result in a more left-leaning PM who loosens the purse strings; U.K. borrowing costs rose earlier this week, with the yield on the benchmark 10-year gilt trading at over 5%.
Commenting on the latest growth data, U.K. Chancellor Rachel Reeves said it showed the government "has the right economic plan."
"Now is not the time to put our economic stability at risk. To do so would leave families and business worse off. Instead, this Government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future," she said in emailed comments.