Britain’s economy delivered rare good news this morning, with the Office for National Statistics reporting that GDP grew by 0.3 per cent in March, ahead of City forecasts and on pace for first-quarter growth of 0.6 per cent.
The figures, the last to come before the outbreak of the Iran war began to roil global markets, point to a services-led rise that has given the Chancellor a brief window of opportunity as he looks ahead to what many economists agree will be a very dark summer.
According to the ONS, the services sector, which is the engine room of the British economy, grew by 0.8 per cent in the quarter, manufacturing rose by 0.2 per cent and construction rose by 0.4 per cent. Supermarkets, computer systems and advertising are the most prominent.
“Growth picked up in the first half of the year, led by broad-based expansion across the services sector,” said Liz McKeown, director of economic statistics at the ONS. “Within that, more sales, computer programming and advertising worked very well.”
For the 5.5 million small and medium-sized businesses, however, the headline number hides a more unpleasant reality. The March printout only covers the first days of the conflict; The data for April and May, when it arrives, is expected to reveal the full cost of disruptions across the Strait of Hormuz and global supply chains.
Chancellor Rachel Reeves took figures to defend her financial strategy, telling reporters that “now is not the time to put our economic stability at risk”.
“Today’s statistics show that the government has the right economic plan,” said Reeves. “The decisions I have made as Chancellor mean that our economy is in a strong position as we deal with the costs of the Iran war. This government continues the work of building a strong, resilient economy, ready for the future.”
The shadow chancellor, Sir Mel Stride, was quick to say that “the turmoil in the Labor leadership is destroying the British economy”. His intervention reflects growing sentiment in Westminster, where Sir Keir Starmer is fighting to hold on to his position amid back-to-back turmoil.
Forecasters have already sharpened their pencils. Capital Economics has cut its UK growth forecast for 2026, with UK deputy chief economist Ruth Gregory warning that “long-term political instability” represents “an additional risk” to her outlook.
“We would be very surprised if growth does not weaken from May as short-term growth in asset accumulation slows and the squeeze on real household income from higher electricity prices increases,” said Gregory. “In our worst case scenario, the economy is slowing down. So the economy is probably going to give everyone who is Prime Minister a bad chance.”
The image of power does a lot of damage. Brent crude has risen nearly 50 percent since March on fears of supply disruptions, and as an energy exporter Britain is more exposed than most of its G7 peers. Higher import costs are expected to quickly filter into inflation, while a slowdown in global demand threatens to weigh on the export book just as British manufacturers are beginning to find their feet.
For SME owners, tangible results are already taking shape. Survey data shows that consumer confidence has fallen sharply since the start of the conflict, and business investment, which has been showing signs of recovery, is expected to stall as boardrooms await clarification on energy costs, interest rates and the political direction.
The Ministry of Finance is said to be looking at the latest statistics before the package to support the energy of businesses and households, small firms in sectors that need energy are looking hard to get targeted help.
Adding to the uncertainty, Reeves himself is reportedly considering whether he can continue in his role under a new Labor leader if Sir Keir is sacked. Bond traders are already pricing in a shift to the left, with gold yielding on expectations that financial rules will be eased and the current government’s growth policies quietly shelved.
Meanwhile, Sir Keir is involved. Following Tuesday’s King’s Speech, in which he promised to “destroy” the status quo and pursue a “strong agenda”, the Prime Minister cited the war as reason enough to continue to lead. Whether anxious backbenchers, and equally anxious business owners, will share that assessment in the coming weeks remains a very open question.
