Economy alert: GDP expected to PLUMMET as US-Iran war pushes fuel prices up

Growth reached 0.6 per cent in the opening three months of 2026, significantly outperforming predictions, with March alone recording a 0.3 per cent expansion.

However, the surge in fuel costs triggered by the conflict has begun squeezing household budgets, and analysts believe April’s figures will mark the start of a weaker trajectory for the remainder of the second quarter.

Retail figures already published for April paint a concerning picture, with sales declining 1.3 per cent compared to the previous month.

This represents the sharpest drop in nearly 12 months, with soaring petrol and diesel prices hammering fuel purchases, while clothing demand also weakened.

Motor fuel sales collapsed by 10.2 per cent, representing the steepest fall since November 2020.

Analysts attribute much of this dramatic reversal to consumers having filled their tanks in March as pump prices began climbing.

This weakness in retail activity is expected to weigh heavily on the services sector, which dominates the UK economy, pulling overall GDP well below March’s 0.3 per cent growth figure.

Deutsche Bank’s chief UK economist Sanjay Raja anticipates the economy will undergo “some course correction” during the second quarter following its strong start to 2026.

He said: “Indeed, with the energy shock from the Iran conflict in full swing, household incomes will likely be squeezed. The cost of living and the cost of doing business will have likely increased, weighing on activity and investment.”

Mr Raja forecasts GDP will edge down approximately 0.1 per cent month-on-month in April, though he does not expect “a big drop-off in momentum just yet”.

He warned that economic activity would likely remain subdued as the energy shock catches up with households and businesses, with domestic political uncertainty potentially intensifying over the summer months.

Other forecasters take a gloomier view of April’s performance. Pantheon Macroeconomics predicts GDP contracted by 0.2 per cent during the month, while Investec Economics expects output to have remained flat.

Investec economist Ellie Henderson noted that March’s better-than-expected 0.3 per cent expansion partly reflected consumers and businesses bringing forward purchases ahead of anticipated price rises.

She said: “This frontloading might have also lifted output in some areas in April, but ultimately its effect will be temporary and will lead to weaker numbers thereafter as inventories are then run down.”