UK enjoyed surprise growth in March but economy ‘in for a rough ride’
The UK economy’s momentum continued as growth was higher than expected in March, official figures have shown, in what may precede months of expected gloom.
The Office for National Statistics (ONS) has revealed that GDP growth was 0.3 per cent in March. This contributed to overall growth of 0.6 per cent in the first quarter.
The services sector grew by 0.8 per cent in the first quarter while production inched up 0.2 per cent and construction was up 0.4 per cent.
“Growth picked up in the first quarter of the year, led by broad-based increases across the services sector,” said Liz McKeown, director of economic statistics at the ONS.
“Within that wholesale, computer programming and advertising performed particularly well.”
The latest figures are for the first month of the Iran war, with data in April and subsequent months set to show the damage from a breakdown in global trade due to disruption across the Strait of Hormuz.
Chancellor Rachel Reeves said “now is not the time to put our economic stability at risk” after the numbers were published.
“Today’s figures show the government has the right economic plan,” Reeves 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.
“This government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future.”
Shadow chancellor Sir Mel Stride said: “The chaos surrounding the Labour leadership is destabilising Britain’s economy.
Forecasts for UK economic growth in 2026 have been slashed. Capital Economics deputy chief UK economist Ruth Gregory said “prolonged political instability” was an “extra downside risk” to forecasts.
“We would be very surprised if growth doesn’t weaken from May as the temporary boost from stockpiling unwinds and the squeeze on households’ real incomes from higher energy prices intensifies,” Gregory said.
“In our adverse scenario, the economy suffers a mild recession. So the economy will probably give whoever is Prime Minister a rough ride.”
Energy markets have been in turmoil since the outbreak of war, with Brent crude spiking by around 50 per cent since March on fears over continued supply disruption.
Economists have warned that the UK could suffer heavier effects than other advanced economies as a net energy importer.
Higher import costs are likely to feed through to inflation while weakening global demand could weigh on exports and dampen growth.
UK economy in crossroads moment
The Treasury will be looking over the data before unveiling an energy support package for businesses and consumers.
Survey data has shown that consumer confidence has fallen sharply since the war began. Business investment, which had shown tentative signs of recovery earlier in the year, is widely expected to stall as bosses wait for clarity.
Chancellor Rachel Reeves is also having to figure out whether she could remain in her position under a new Labour leader if Sir Keir Starmer is ousted.
Bond traders are pricing in a leftward tilt in the government that would lead to fiscal rules being loosened and Labour’s growth policies being abandoned.
Starmer has previously vowed to stay on as leader due to geopolitical tensions damaging the UK economy.
After the King’s Speech on Tuesday, he said he would “tear down” the status quo and promised a “radical agenda” in an attempt to appeal to anxious backbenchers.