UK economy shows surprising resilience despite Iran war impact

The British economy is demonstrating far greater resilience than many economists anticipated, including the International Monetary Fund, which had projected the United Kingdom would suffer the most severe consequences from the Iran war.

A closer examination of key economic indicators provides a clearer picture of the nation’s current performance.

The following six charts illustrate the economic trends at play.

The latest official data show the economy expanded by 0.6% in the first quarter, January through March, marking a notable acceleration from recent sluggish growth.

This solid figure is especially encouraging given the Iran war raged during the final month of the period.

However, analysts caution that recent years have seen fast starts that later faded.

Growth figures can be inflated by population increases, as more workers generate more economic activity.

To gauge whether living standards are improving, economists adjust growth for population using GDP per capita.

That metric has remained sluggish in recent years, reflecting stagnant living standards.

The latest GDP per capita reading was the fastest in four years, since the energy shock triggered by Russia’s invasion of Ukraine.

Every nation has been affected by the Iran war, so comparing the UK within the Group of Seven offers context.

The UK currently leads the G7 in growth, with Japan yet to report but expected to post a lower figure.

The IMF prominently forecast last month that the UK would be the hardest-hit G7 economy; that prediction has not materialized so far.

One possible explanation is protection for household domestic energy bills.

Additionally, this energy shock—driven more by oil than gas—may have affected the UK less as it has reduced sensitivity to gas prices in recent years.

Growth was broad-based across services, construction, and manufacturing, with wholesale and retail trade suggesting resilient consumer spending.

Professional scientific activities and information and communications sectors thrived, aligning with strong investment news verging on a boom in UK artificial intelligence and tech, dubbed "Britmaxxing."

However, concerns are emerging due to rising fuel and chemical costs.

The machinery and equipment sector declined, as did administrative services activities.

House building warrants watching given the rise in fixed mortgage rates.

Resilience has been impressive so far, but the latest consumer confidence surveys show the impact of rising fuel and mortgage costs, likely to weigh on growth.

Little wonder that the chancellor and prime minister are eagerly hoping for an end to hostilities in the Gulf and reopening of the Strait of Hormuz.

While the UK economy showed signs of recovery early in the year, events in the Gulf could yet derail momentum.

Graphics by Rob England and Mike Hills.