The UK economy expanded 0.6% in the first quarter of 2026, according to preliminary figures from the Office for National Statistics published last Thursday — a number that matched the consensus forecast of economists polled by Reuters and offered a rare piece of good news to a government otherwise consumed by political turmoil.
Growth was led by the services sector, which expanded 0.8% over the quarter, while production also grew slightly and construction returned to expansion after a weak end to 2025. The quarterly figure follows revised growth of 0.2% in Q4 2025 and lifts the rolling three-month figure to 0.5%.
“Right economic plan”
Liz McKeown, Director of Economic Statistics at the ONS, said growth “picked up in the first quarter of the year, led by broad-based increases across the services sector.” Chancellor Rachel Reeves seized on the figures, insisting the data confirmed the government “has the right economic plan” — a defensive line given the political pressure on Sir Keir Starmer’s premiership.
Independent economists offered a more cautious reading. Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research, warned that the Q1 data “largely reflects old news.” He added: “Although growth held up in March, there are signs of underlying weakness in the wake of conflict in the Middle East. Business confidence has taken a hit, input price inflation has risen, and job vacancies are falling.”
The Iran war shadow
The closure of the Strait of Hormuz, through which roughly 20% of global oil and gas transited before the conflict, has driven Brent crude to around $110 per barrel and pushed UK inflation back above the Bank of England’s 2% target. The OBR has trimmed its full-year 2026 GDP forecast to 1.1%, while independent forecasters have revised projections lower still — the average in HM Treasury’s April survey of independent forecasts was just 0.6%.
The Bank of England held its base rate at 3.75% in March, pausing a cutting cycle that had brought borrowing costs down from a 16-year high. Governor Andrew Bailey has described the outlook as one of “difficult judgements,” and markets are now pricing in the possibility of rate hikes later in the year as second-round inflation effects from energy costs work through the economy.
Gilts above 5%
Government borrowing costs have risen sharply. The yield on the benchmark 10-year gilt pushed above 5% earlier this month, reflecting investor concerns over both the Iran conflict and the possibility of a Labour leadership change that could bring a more left-leaning successor to Number 10. Sterling has weakened against the dollar to a one-month low on the political uncertainty.
Unemployment has crept up to around 5.1-5.2% as slower growth and the increased employer National Insurance contributions that took effect in April 2025 weigh on hiring. Pay growth, while cooling from recent highs, is putting renewed pressure on real household incomes — particularly as petrol and food prices climb on the back of the energy shock.
For Reeves, the Q1 figure is a moment of respite rather than recovery. The political question now is whether the Chancellor — and her boss — will still be in office to claim credit for any sustained improvement.
