(May 14): The UK kicked off the year with a burst of economic growth, with business and consumers appearing to hold up in the initial weeks of the Iran war.
Gross domestic product grew 0.6% in the first quarter, a jump from the 0.2% in the previous three months and the fastest expansion for a year, the Office for National Statistics (ONS) said on Thursday.
The reading was in line with the median forecast of economists and above the 0.5% predicted by the Bank of England.
The strong start to 2026 owes much to a bumper February — before the Iran war began — when the economy grew 0.4%. However, it also expanded 0.3% in March with output rising across the board. Economists had expected a modest fall.
However, economists warned that growth is now at risk from the fallout from a Middle East conflict that shows no signs of ending and the prospect of a new prime minister.
More timely survey data suggests the Iran war has continued to weigh on private sector activity. Businesses reported soaring energy costs and weaker demand in April, S&P figures showed, boosting fears of stagflation.
See also: IMF tells UK to stick to fiscal plan as Starmer rivals circle
Meanwhile, the ONS said partial spending data for April point to “some weakening going into the second quarter” with indicators of consumer demand easing.
What Bloomberg Economics says...
“The UK economy had a strong start to 2026, mimicking the pattern seen in recent years. We don’t expect the pace to last, as higher energy costs and tighter funding conditions are likely to bring growth to a near halt in the coming quarters. The recent political turmoil, which will also drag on activity, only reinforces that view.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said “this will be the high point for the year given the effects of the war in Iran will sap growth from 2Q.”
See also: Revolt against Starmer revives UK debate over undoing Brexit
In Capital Economics’ main forecast, the economy stalls in the second and third quarters. In its worse-case scenario, the UK could fall into a mild recession.
A relatively rosy economic picture at the start of the year is unlikely to shore up Prime Minister Keir Starmer’s position after his Labour Party suffered disastrous losses at last week’s local elections. Starmer now faces a potential challenge to his leadership, with around 100 lawmakers, including four ministers, calling for his departure.
Economists and investors warn that Starmer’s fight for survival will weigh on the UK’s economic outlook. The turmoil has already roiled bond markets, pushing up borrowing costs on longer-dated debt to their highest in decades and above Group-of-10 peers.
The tension between weak growth and rising inflation is top of mind for Bank of England officials. Policymakers kept interest rates unchanged in April but signalled they could raise borrowing costs if price pressures intensify. At the same time, they said they are watching closely for signs that the war in Iran is hurting demand and slowing the economy.
Some of the strength in March may reflect businesses and households stocking up to avoid possible supply problems and ahead of expected interest rate hikes linked to the Iran war.
Official retail sales data showed drivers rushing to fill up their cars in March, while construction firms told S&P’s PMI survey they were building up stocks of raw materials.
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There was growth across the board in the first quarter, with consumer spending rising 0.6%, business investment up 0.7% and government spending on goods and services climbing 0.4%. Net trade was a modest drag as the trade deficit widened.
Services, which drive the UK economy, grew by 0.8% on the quarter, with widespread gains driven by wholesale, advertising and computer programming, the ONS said.
Living standards improved at the fastest pace since 2022. Real GDP per head expanded 0.6% in the first quarter, up from 0.1% at the end of 2025.
GDP in March saw services, manufacturing and construction all rise on the month.
The strong first quarter figures are likely to be greeted with scepticism by many economists, who suspect the statistics office is failing to properly adjust for changes in seasonal spending patterns. Even rate-setters at the Bank of England have aired misgivings about the reliability of the data.
Recent years have seen the economy growing healthily in the first and second quarters of the year before stalling or even contracting in the third and fourth.
To address concerns, the ONS on Thursday began publishing non-seasonally adjusted GDP figures. One theory is that business investment is increasingly happening at the start of the year. Another, mentioned by the ONS in a blog post on Thursday, is that households and firms hold off making significant financial decisions ahead of the autumn budget.
“A consequence of deferred spending will be stronger growth in the first quarter, as we have been seeing and are seasonally adjusting for,” said James Benford, director-general for surveys and economic and social statistics at the ONS.
“It is, however, inherently difficult to judge how much of this is part of a new regular pattern that might be established with the move to a single fiscal event, and how much it reflects temporary changes relating to a period of adjustment following Covid-19.”
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