The UK economy contracted by 0.1% in April, according to official data from the Office for National Statistics (ONS), reversing part of the 0.3% expansion recorded in March. The decline, which matched economists' expectations, was driven primarily by weakness in the services sector, which accounts for the largest share of economic output.
The ONS reported that services output fell 0.2% in April, with notable declines in public administration, arts, entertainment, and recreation. This pullback comes as higher energy prices—linked to geopolitical tensions, including the closure of the Strait of Hormuz—begin to weigh on business and consumer activity. The conflict has disrupted a key global shipping route, contributing to rising costs and uncertainty.
Construction Provides Modest Support
Construction activity offered some offset, rising 0.1% during the month. However, the ONS noted that the increase was entirely attributable to repair and maintenance work, while new construction fell 0.3%. This occurred despite the government's pledge to accelerate building and deliver 1.5 million new homes, suggesting that policy efforts have yet to translate into broad-based gains in the sector.
Longer-Term Growth Remains Positive
Despite the monthly contraction, the broader economic picture remains more resilient. Over the three months to April, GDP expanded by 0.7%, a measure that economists generally consider less volatile and more indicative of underlying trends. This suggests that the economy is still growing, albeit at a slower pace than earlier in the year.
However, headwinds are building. Rising oil and energy prices are expected to push inflation higher, dampening consumer spending and business investment. Economists have increasingly lowered their growth forecasts for the UK and other major economies, citing the impact of higher energy costs and geopolitical instability.
Economists Warn of Further Slowdown
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, warned that economic pressures could intensify. “We expect this slowdown to intensify as higher energy costs feed through the economy, with the impact likely to be felt most acutely in the third quarter as the energy price cap rises,” he told The Guardian.
Market participants are now focused on upcoming inflation and labor market data, which will provide clearer signals on how the conflict is affecting the UK economy. The British pound showed modest strength following the GDP release, recovering earlier losses against the US dollar to trade near 1.3410, despite the weaker-than-expected economic backdrop.
For broader context, geopolitical risks have also weighed on other asset classes. For instance, copper prices have dipped below $14,000 amid tariff uncertainty and ongoing tensions, while crude oil fell over 1% on ceasefire progress in the Middle East. These cross-asset moves highlight the interconnected nature of current market risks.
This article is for informational purposes only and does not constitute financial advice.
