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P.ublished 12th June 2026
business
GDP Declines As Impact From Middle Eastern Conflict Spreads
"While GDP fell on a monthly basis in April for the first time since the end of last summer, the quarterly picture tells a more encouraging story.
"The economy actually grew 0.7% in the three months to April, driven by a resilient services sector and a construction industry that has now strung together consecutive months of growth following a period of contraction.
"Despite this, the economy is facing considerable headwinds, the most serious of which is the conflict in the Middle East, which is acting as a chokepoint in the global economy that is pushing up energy prices, disrupting supply chains and spooking policymakers.
"Yesterday, the European Central Bank became the first G7 central bank to raise rates in response, citing inflationary pressures stemming from the Middle East conflict. That decision will not have gone unnoticed on Threadneedle Street.
"Even so, we expect the Bank of England's Monetary Policy Committee to hold rates when it meets next week. UK inflation remains above the 2% target but has not spiralled because of the conflict, while the economy is holding up relatively well, all things considered. Increasing rates would act as an anchor on the economy and a fragile labour market.
"For UK households, the message is the same regardless of what the MPC decides: build a financial buffer if you can and make sure your money is working as hard as possible, whether that means shopping around for a better savings rate or putting spare cash to work in the stock market for the long term."
“GDP growth of 0.7% in the three months to April confirms a strong start to the year, but today’s figures continue to reflect the unusually robust performance seen in preceding months. With the economic fallout from the Middle East conflict now feeding through to the economy, this pace of growth is unlikely to be sustained.
“Our business surveys report that underlying momentum remains subdued across much of the private sector as global shocks compound domestic headwinds, with businesses facing growing pressure from elevated costs and uncertainty.
“In a world of elevated uncertainty, the UK’s growth prospects will depend increasingly on the strength of its domestic fundamentals. Businesses have shown resilience through recent economic shocks, but many are now facing costs that are becoming increasingly difficult to absorb. That makes it all the more important for government to deliver a business-led growth agenda by cutting energy costs, unlocking infrastructure delivery through robust private sector partnerships, and finding workable landing zones on employment rights reform that support hiring and job creation.”
“April’s decline in GDP shows impacts from the Middle East spreading across the economy. Manufacturers, wholesalers and those in transport, accommodation and travel are all reporting lower turnover arising from the conflict. Meanwhile the prices of crude oil inputs are up 75% on the year. These impacts will only deepen and spread as time passes, with higher inflation eroding consumer incomes and spending. For businesses, sharply rising fuel, transport and input costs, slowing decision-making and declining confidence are combining with a turbulent and costly domestic policy environment, creating strong headwinds to growth. As the UK continues to navigate these challenges, the careful management of policy trade-offs matters more now than ever. The removal of barriers to growth, from tax and regulation and the delivery of a predictable policy environment, must remain the focus of government policy action.”