The UK economy recorded unexpected growth in March despite the early impact of the Iran war, according to the latest figures from the Office for National Statistics (ONS). The economy expanded by 0.3%, outperforming analysts’ expectations of a slight contraction, as businesses and consumers accelerated spending amid fears of future price hikes linked to the conflict.
The ONS reported that economic growth for the first quarter of the year reached 0.6%, driven by strong performances in sectors including retail and construction. Analysts noted signs of “front-loading,” with companies and households bringing forward purchases in anticipation of rising costs caused by instability in Iran.
One of the key areas experiencing increased activity was the automotive sector. Retailers reported higher fuel purchases as petrol prices surged, while some consumers were encouraged to buy electric vehicles due to mounting fuel costs. Financial experts believe this temporary boost may not continue in the coming months.
UK Chancellor Rachel Reeves welcomed the figures, saying they demonstrated that the government’s economic strategy was working. However, she warned that political instability and a possible Labour leadership contest could threaten economic confidence during a period of global uncertainty.
Economists have cautioned that the full economic effects of the Iran conflict are likely to become more visible later this year. KPMG chief economist Yael Selfin said households were already facing renewed pressure as energy, petrol, and food prices continue to rise due to supply disruptions linked to the conflict.
Businesses across the UK are also feeling the strain. Siblings Kennady and Boston Mace, who operate a play centre in Chelmsford, Essex, said families are increasingly cutting back on spending. They noted that many customers are now paying only for activities while avoiding food purchases to save money.
Meanwhile, medical device manufacturer Europlaz Technologies reported immediate increases in the cost of polymers, a key material used in production. Commercial director Rory O’Keeffe said suppliers had raised prices by up to 10%, with some unable to guarantee prices until the point of purchase, making long-term business planning difficult.
Economic analysts believe the March growth figures may represent the strongest point of the year. Ruth Gregory of Capital Economics warned that economic growth could weaken from May onward as stockpiling declines and higher energy prices place further pressure on household incomes. She added that under a worst-case scenario, the UK economy could slip into a mild recession.
Opposition politicians also criticized the government’s handling of the economy. Shadow Chancellor Mel Stride claimed political uncertainty surrounding Labour leadership discussions was damaging market confidence, while Liberal Democrat Treasury spokesperson Daisy Cooper argued the government was too distracted by internal disputes instead of addressing the rising cost of living.
Despite the stronger-than-expected March performance, economists warned that revised figures for January and February showed slower growth than previously estimated, highlighting the fragile state of the UK economy amid ongoing geopolitical tensions.