Is the economy not just resilient but flourishing in the wake of the Iran war? GDP in the three months ending April was 0.7 per cent higher than the preceding three months – the fifth reading where growth has accelerated, and the fastest pace of growth since May 2024.
Unfortunately, this strength won’t continue. Month-on-month growth has been falling since February, and the economy shrank 0.1 per cent in April alone, down from 0.3 per cent growth in March. Services, which are about three-quarters of economic output, fell by 0.2 per cent, production was flat and construction grew by 0.1 per cent.
Things are likely to get worse with May’s figures: in that month, the construction industry showed a steep downturn in activity and services business activity shrank for the first time since last April, according to S&P Global’s Purchasing Managers’ Indexes. However, the warmer weather – which tends to drive British consumers outdoors to spend – may have buoyed the economy.
Deutsche Bank says that ‘after a super strong start to the year, some course correction was inevitable’. Rising interest rates and elevated energy prices will continue to hurt households’ spending power. The strong start to the year puts Britain’s economy on course to grow by around 1 per cent, faster than our European G7 peers. Unfortunately, we may have enjoyed most of that growth already.
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