The UK economy unexpectedly grew during the first full month of the Iran war, according to official figures, suggesting the Middle East conflict has not yet affected growth as much as feared.
Figures from the Office for National Statistics (ONS) showed growth of 0.3% in gross domestic product (GDP) in March, down from a revised 0.4% rise in February and 0% growth in January. The ONS had originally estimated that the economy grew 0.5% in February and 0.1% in January.
The figure for March was significantly better than economists’ expectations, which had forecast that GDP would shrink by 0.2%.
Over the first three months of 2026, GDP rose 0.6%, up sharply from growth of 0.1% in the final three months of last year. It also grew by 1% compared with the same quarter in 2025.
Simon Pittaway, a senior economist at the Resolution Foundation, said: “For the third year in a row, the UK economy made a fast start to the year. Respectable growth of 0.6% in early 2026 makes the UK currently the fastest growing economy in the G7.”
The ONS said that growth in the first quarter was “led by broad-based increases across the services sector”, which grew by 0.8%. It added that the computer programming and advertising industries “performed particularly well”, while construction returned to growth, rising by 0.4%, although this was driven by repair and maintenance work rather than new work. Production, which includes industries such as manufacturing also rose, by 0.2%.
However, on a monthly basis, the biggest downward effect on GDP growth was a 6.4% fall in travel agency and tour operator activities, suggesting the Middle East conflict was leading consumers to reconsider their holiday plans.
The March figure is one of the first official signs that the Iran war, which broke out on the final day of February, is not affecting activity for businesses and consumers as badly as expected, despite soaring oil and gas prices due to the closure of the strait of Hormuz.
Rachel Reeves, the chancellor, said the figures showed the government had “the right economic plan”. She said: “The choices I have made as chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran.”
Reeves hinted at the in-fighting happening within the Labour party as Keir Starmer fights to hang on to his job. She added: “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 told the BBC: “We shouldn’t put that 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.”
She added that, after seeing the growth in the economy, “I’ll be able to set out more plans to support families and businesses with the challenges that have come from this conflict in the Middle East, and I look forward to setting those out next week.”
Reeves has said any financial support for households would be “targeted” at those most in need.
Living standards also improved at the fastest pace since 2022, according to the ONS. Real GDP per head grew 0.6% in the first quarter, up from 0.1% from the last three months of 2025.
The GDP reading ties in with some business surveys that suggest the economy has managed to maintain momentum despite the Middle East conflict.
The closely watched purchasing managers index (PMI) for the UK showed business activity rising in April because of upturns in manufacturing production and output from the services sector. Retail sales also rose in March, even when excluding the increased cost of fuel, according to the ONS.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The economy performed remarkably well in the early stages of the energy price shock … but this will be the high point for the year given the effects of the war in Iran will sap growth from the second quarter.”
Economists were pessimistic about the growth continuing into the second quarter and said some of the rise may be due to businesses and consumers stocking up on goods, fuel and raw materials ahead of possible supply shortages and higher borrowing rates. Yael Selfin, the chief economist at KPMG, said: “The adverse effect of the war in Iran on the economy is likely to show in the second quarter. We expect growth to slow, as higher costs and softer demand continue to weigh on activity.”
The Bank of England is expected to raise interest rates in response to rising inflation this year. However, its deputy governor, Sarah Breeden, told the Financial Times on Thursday that “we can’t wait forever, but we don’t need to do it in June or July”.
