The UK economy contracted by 0.1% in April 2026, marking a slowdown influenced heavily by the ongoing conflict in Iran. This quarterly dip followed a period of modest growth, with the economy expanding by 0.3% in March and 0.4% in February, though there was no growth recorded in January. The decrease was primarily driven by a 0.2% decline in the services sector, particularly the sports, amusement, and recreation industries, which experienced a sharp 9.1% fall, exacerbated by event cancellations linked to the Middle East conflict.

The Office for National Statistics (ONS) highlighted that the conflict also impacted other sectors including manufacturing, wholesale, transportation support, and travel agencies, as companies reported reduced turnover due to rising costs. A recurring theme from businesses was the surge in energy and fuel prices, attributed to supply issues stemming from the war, which pressured the UK economy and contributed to cooling consumer activity. Production output in April remained flat, and construction saw a small increase of 0.1%, insufficient to offset the overall negative trend.

Economists like Suren Thiru from the Institute of Chartered Accountants in England and Wales view these figures as a sign of emerging stagflation, where rising costs coincide with stagnant growth. The Iran conflict has shifted fuel costs from being a growth catalyst in March to a significant headwind in April, as consumers reduced fuel purchases amid soaring prices. This stark change in economic conditions also lessens the likelihood of a Bank of England rate cut in the near term.

The International Monetary Fund back in April forecasted the UK to be the worst-hit major economy by the Iran war due to its status as a net energy importer. Their projection for UK growth in 2026 was downgraded to 0.8%, down from the earlier estimate of 1.3%. Inflation in the UK eased to 2.8% in April, helped by the national energy price cap, but this cap will increase by 13% starting in July, which may further strain the economy as energy providers pass on higher oil and gas costs.