UK Economy Records 0.6% Growth to March, Analysts Project Weaker Outlook

The UK economy saw a 0.6% expansion in the three months leading to March, according to the Office for National Statistics (ONS). This growth, primarily propelled by the dominant services sector, showed a 0.3% increase in March alone, surpassing initial predictions for the first full month following the outbreak of the Iran conflict.

However, this initial buoyancy is expected to dissipate. Analysts anticipate a weakening of growth as the wider economic repercussions of the conflict, particularly rising energy and food costs, filter through to household budgets. Liz McKeown, ONS director of economic statistics, noted strong performances in wholesale, computer programming, and advertising, alongside a return to growth in the construction sector, albeit partially reversing previous declines.

Economic Challenges Ahead

Yael Selfin, KPMG's chief economist, projects that the impact of the Iran conflict will intensify 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 stated. These factors are set to curtail disposable incomes, subsequently dampening demand and posing considerable challenges to economic activity in the coming months.

While March’s growth exceeded expectations, the ONS revised down February's estimate from 0.5% to 0.4%, and January's from 0.1% to zero. Chancellor Rachel Reeves cited the figures as evidence of the government's “right economic plan,” cautioning against jeopardising “economic stability.” Conversely, Shadow Chancellor Mel Stride accused Labour of “destabilising Britain’s economy,” pointing to rising borrowing costs. Luke Bartholomew of Aberdeen Investments remarked that current market dynamics mean these growth figures hold less sway, with higher energy prices and political uncertainty likely to inhibit investment and recovery.