The UK economy recorded stronger-than-expected growth during the first full month of the Iran war, easing fears that the escalating Middle East conflict would immediately damage economic activity.
New figures released by the Office for National Statistics (ONS) showed that gross domestic product (GDP) grew by 0.3% in March, following a revised 0.4% increase in February and zero growth in January.
The latest figure significantly outperformed economists’ forecasts, which had predicted the UK economy would shrink by 0.2% during the month.
Across the first quarter of 2026, the economy expanded by 0.6%, compared with growth of just 0.1% during the final three months of 2025. GDP also rose by 1% compared with the same period last year.
Economists said the figures suggest Britain has so far managed to withstand the economic shock caused by the Iran conflict, despite soaring oil and gas prices linked to disruption in the Strait of Hormuz.
Simon Pittaway, senior economist at the Resolution Foundation, said: “For the third year in a row, the UK economy made a fast start to the year. Respectable growth of 0.6% in early 2026 makes the UK currently the fastest growing economy in the G7.”
According to the ONS, growth during the first quarter was mainly driven by the services sector, which expanded by 0.8%.
The agency said computer programming and advertising performed particularly strongly, while the construction sector returned to growth with a 0.4% rise, largely due to repair and maintenance work rather than new building projects.
Production industries, including manufacturing, also recorded modest growth of 0.2%.
However, there were early signs that the Middle East conflict may already be affecting consumer behaviour.
Travel agency and tour operator activity fell by 6.4% in March, marking the largest negative impact on monthly GDP growth and suggesting some consumers may be reconsidering holiday plans due to instability in the region.
Chancellor Rachel Reeves said the latest figures showed the government had “the right economic plan”.
She 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.”
Reeves also defended Labour’s economic approach amid growing political tensions within the party.
“Now is not the time to put our economic stability at risk. To do so would leave families and business worse off. Instead, this government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future,” she said.
Speaking to the BBC, Reeves added: “We shouldn’t put that at risk by plunging the country into chaos at a time when there is conflict in the world, but also at a time when our plan to grow the economy is starting to bear fruit.”
She also suggested further support measures for households and businesses affected by rising energy costs could be announced soon.
“I’ll be able to set out more plans to support families and businesses with the challenges that have come from this conflict in the Middle East, and I look forward to setting those out next week,” Reeves said.
The ONS also reported that living standards improved at the fastest pace since 2022, with real GDP per person rising by 0.6% during the first quarter.
Business surveys released alongside the GDP figures also indicated that economic activity remained relatively resilient in April, with manufacturing and services both recording growth.
Retail sales also increased in March, even after excluding higher fuel prices.
Despite the stronger-than-expected start to the year, economists warned that the full impact of the Iran war may not yet have been felt.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The economy performed remarkably well in the early stages of the energy price shock … but this will be the high point for the year given the effects of the war in Iran will sap growth from the second quarter.”
Yael Selfin, chief economist at KPMG, also warned that growth is expected to slow later in the year as higher costs and weaker demand begin to affect businesses and households.
“The adverse effect of the war in Iran on the economy is likely to show in the second quarter. We expect growth to slow, as higher costs and softer demand continue to weigh on activity,” she said.
Meanwhile, expectations remain that the Bank of England could raise interest rates later this year as inflation pressures continue to build.