UK Economy Grows 0.3% in March Despite Iran Conflict, ONS Data Shows

The UK’s economy posted unexpected growth in March, even as the initial effects of the war in Iran took hold.

The economy expanded 0.3%, defying analysts’ expectations of a slight contraction, though the conflict’s impact is projected to weigh on growth later this year.

The Office for National Statistics (ONS) reported signs that consumers and businesses accelerated spending in March amid concerns over future price hikes linked to the war.

Chancellor Rachel Reeves said the figures prove the government has “the right economic plan,” but warned that a Labour leadership contest risked “plunging the country into chaos.”

The ONS said economic growth for the first quarter of the year stood at 0.6%, driven by a rebound in retail and construction sectors.

That quarterly pace is the fastest in a year and the highest among G7 nations that have reported data so far. Last month, the IMF warned the UK would suffer the most severe impact from the Iran war among advanced economies.

The ONS noted signs of so-called front-loading in March, with some surveyed businesses “cited activity being bought forward in anticipation of increases in costs because of conflict in Iran.”

One area affected was car sales and leasing. The ONS said retailers reported motorists stocking up on fuel as prices rose sharply.

Danni Hewson, head of financial analysis at AJ Bell, said some drivers may have received a “nudge” to buy an electric vehicle (EV) in March due to rising fuel costs.

Yael Selfin, KPMG’s chief economist, said the Iran war’s impact would likely become more pronounced in the second quarter.

“Households are under renewed pressure as energy and petrol prices climb. Food costs are also expected to rise, with disruptions to fertilisers and other essential inputs,” she said.

“These increases are likely to weigh on disposable incomes, dampening demand and posing a significant challenge to economic activity over the coming months.”

Siblings Kennady and Boston Mace run a play centre in Chelmsford, Essex, and have noticed families cutting back on spending.

“We’ve got our own children so we appreciate how expensive a day out can be,” Boston said.

“Everything’s going up… we’ve got a limit on what we can charge so the profit margin is getting smaller and smaller.”

Kennady added that where families used to use the centre as an all-inclusive venue, more visitors now pay for activities but not food — “which is understandable … money’s a lot tighter.”

Boston said the centre has endured the Covid pandemic, a fire, a flood and a theft, but “this seems [to be] the most difficult period we’ve had” in their 13 years in business.

Chancellor Rachel Reeves told the BBC the economy “is growing strongly” and she would announce additional support for families and businesses affected by the war next week.

But in a reference to speculation about the prime minister’s position, Reeves said: “We shouldn’t put [economic stability] at risk by plunging the country into chaos at a time when there is conflict in the world but also at a time when our plan to grow the economy is starting to bear fruit.”

Shadow chancellor Mel Stride said the “chaos surrounding the Labour leadership is destabilising Britain’s economy.”

“This week, borrowing costs hit their highest level in 30 years as Labour leadership contenders competed to promise even more spending, borrowing and fantasy economics.”

Liberal Democrat Treasury spokesperson Daisy Cooper MP said the latest growth figure was “already in the rear-view mirror” because of the war.

“Instead of tackling the cost of living, the government is consumed by infighting.”

Europlaz Technologies, a medical device manufacturer based in Essex, saw price rises as soon as the war broke out.

The firm’s commercial director, Rory O’Keeffe, said the price of polymers, crucial to their operations, had increased by “five to 10%.”

“We’re seeing pretty much immediate price increases coming through from those suppliers,” he told the BBC, but other areas are also affected.

Some of the company’s suppliers are even saying “they can’t confirm the price until the point of transaction.”

“It’s hard to run a business at that level and plan.”

Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest growth figures would “be the high point for the year” given the effects of the war in Iran.

“We would be very surprised if growth doesn’t weaken from May as the temporary boost from stockpiling unwinds and the squeeze on households’ real incomes from higher energy prices intensifies.

“In our adverse scenario, the economy suffers a mild recession. So the economy will probably give whoever is prime minister a rough ride.”

GDP figures can be revised up or down as the ONS gathers more information on the economy.

In the latest release, the growth for the final three months of 2025 was revised up to 0.2% from the previous estimate of 0.1%.

On a monthly basis, while March’s growth was higher than expected, the estimate for February was revised down from 0.5% to 0.4%, and January’s was reduced from 0.1% to zero.

Additional reporting by Adam Woods, economics producer.