UK economy shrinks as Middle East conflict bites

The fall in gross domestic product, which economists had anticipated, followed a 0.3 per cent rise in March, according to the Office for National Statistics. The downturn was led by a 0.2 per cent decline in services output, partly offset by a 0.1 per cent rise in construction.

Weakness in services was driven in part by the arts, entertainment and recreation sector, with the ONS citing the cancellation of multiple sporting events in the Middle East.

Although construction rose, the increase came solely from repair and maintenance, with new work down 0.3 per cent. Over the three months to April, a less volatile measure, GDP grew 0.7 per cent.

Kevin Brown, savings expert at financial mutual Scottish Friendly, said the quarterly picture told a more encouraging story than the monthly fall.

“The economy actually grew 0.7 per cent 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,” he said.

He warned, however, that the Middle East conflict was “acting as a chokepoint in the global economy that is pushing up energy prices, disrupting supply chains and spooking policymakers”.

Mr Brown noted that the European Central Bank had become the first G7 central bank to raise rates in response, a move that “will not have gone unnoticed on Threadneedle Street”, but expected the Bank of England to hold, arguing that a rise “would act as an anchor on the economy and a fragile labour market”.

Emeritus Professor Joe Nellis, economic adviser at accountancy and advisory firm MHA, said persistently weak productivity, driven by years of underinvestment, alongside rising geopolitical tensions were now weighing on growth.

“Growth at this level will do little to ease the pressures on the Chancellor, as government borrowing remains elevated and tax revenues fall short of spending commitments,” he said.

He warned that the impacts of slow growth were increasingly felt by households amid an ongoing cost-of-living crisis and a cooling labour market. Mr Nellis expected the economy to grow around 1 per cent for the year as a whole, with inflation remaining the immediate challenge.

He concluded: “It remains to be seen how the Bank of England will combat renewed price pressures without extinguishing the little fire still burning in the economy.”