UK economy contracts as Iran war impact felt

The UK's economy shrank slightly in April as the Iran war began to have an impact on businesses, official data has indicated.

The economy contracted by 0.1% in the month, the Office for National Statistics (ONS) said, with some firms citing the conflict in the Middle East as having raised costs and affected turnover.

April's contraction was the first monthly fall since August last year, but had been forecast by economists after stronger than expected growth in March.

Analysts said that after a good start to the year the economy was set to slow over the next few months, and they expect the Bank of England to keep interest rates unchanged when it meets next week.

In the three months to April - which is generally seen as a less volatile measure - the ONS said the economy grew by 0.7% compared with the previous three-month period.

When the Iran war broke out it led to the effective closure of the Strait of Hormuz, a key shipping route for oil tankers, causing crude oil prices to surge.

The price of a barrel of Brent crude, the international benchmark, has risen as high as $120 since the conflict began, but has fluctuated as hopes of an end to the war have risen and fallen.

On Friday, the price sank to a three-month low of $86 on hopes that a resolution to the conflict could be close.

The increase in oil prices since the start of the war has led to a rise in petrol and diesel prices in the UK. Household energy bills will also increase in the coming months with the energy price cap rising in July.

Oil prices also have a wide-reaching effect on the cost of many goods and services.

Yael Selfin, chief economist at KPMG UK, said that while the economy grew over the three months to April, "the contraction in April is more indicative of growth prospects for the economy going forward".

The monthly figure, she said, "points to renewed fragility in the UK economy, with pressure on both consumers and businesses likely to persist over the coming months".