UK Economy Posts Surprise March Growth Despite Iran War Disruption

BBC Business reported Thursday that the UK economy grew 0.3% in March, easily topping analyst expectations of a slight contraction. The stronger-than-expected reading lifted first-quarter GDP to 0.6%, according to data published by the Office for National Statistics.

Retail and Construction Lead a Broad Q1 Recovery

The ONS said March’s growth was broadly based. Retailers benefited as drivers rushed to buy fuel ahead of anticipated shortages. Wholesale trade, computer programming, and advertising each contributed meaningfully to services sector gains. Construction returned to growth after a weak finish to 2025, though ONS Director of Economic Statistics Liz McKeown noted the rebound only partially offset earlier weakness.

Economists described some of the activity as “front-loading.” Businesses and consumers appear to have pulled purchases forward, notably in car sales and rentals, ahead of expected supply squeezes and price rises linked to the conflict.

Background: The Iran War and the Strait of Hormuz

The Strait of Hormuz closure triggered by the Iran conflict sent fuel costs sharply higher in March. Analysts had assumed that pressure would push GDP into negative territory. While it did not in March, the damage is expected to accumulate. Yael Selfin, chief economist at KPMG, warned that the second quarter would feel the strain more acutely. She flagged rising energy, petrol, and food costs as compounding threats to household disposable incomes and broader demand.

Earlier ONS revisions also tempered the headline optimism. February’s growth figure was trimmed from 0.5% to 0.4%, while January’s reading was cut from 0.1% to zero.

Reeves Pledges Support as Political Uncertainty Swirls

Chancellor Rachel Reeves told the BBC the government planned to announce further relief for households and businesses next week. She pointed to the growth data as evidence that the government’s economic strategy was taking hold. But her remarks carried a political edge, warning against destabilising the economy at a time of global conflict.

Shadow Chancellor Mel Stride pushed back, arguing that Labour leadership speculation had already unnerved markets. He cited a 30-year high in UK borrowing costs this week as evidence.

Ruth Gregory, deputy chief UK economist at Capital Economics, called March’s print the likely peak for the year. She said a mild recession remained a real possibility in an adverse scenario, adding that higher energy bills would increasingly bite into consumer spending from May onward.

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