By Ed Frankl
The U.K.'s economy outpaced the U.S. and most of its European peers in the first quarter of the year, but that resilience is set to be severely tested as the effects of the conflict in the Middle East persist.
Britain's economy has struggled to gain momentum for much of the past two decades, recently suffering not just from the headwinds of the Covid-19 pandemic and Russia's full-scale invasion of Ukraine, but the lingering hit to business investment stemming from its exit from the European Union.
However, from January through March, gross domestic product grew 0.6%, up from the 0.2% of the final quarter of 2025, the country's Office for National Statistics said Thursday. That matched expectations from a consensus of economists polled by The Wall Street Journal, and equaled the fastest pace since the first three months of 2024.
On an annualized basis, GDP rose 2.6%, higher than the U.S.'s 2.0% expansion. In March, even after the first U.S.-Israel strikes on Iran, U.K.'s monthly GDP unexpectedly grew 0.3%, though the ONS cautioned that some industries cited activity being brought forward in anticipation of cost increases due to the war.
"While the outlook for growth is fragile, the initial effect of the energy price shock on the U.K. economy has been limited in terms of growth," Fergus Jimenez-England, associate economist at NIESR, said in a note to clients.
The U.K.'s dominant services sector drove the growth, expanding 0.8%, though there were positive contributions from manufacturing production and construction, the ONS said. Household spending and private investment also accelerated in the quarter.
However, the continued closure of the Strait of Hormuz and the jump in energy prices threaten to deliver a fresh blow just as the economy shows signs of a pickup.
The International Monetary Fund in April cut its estimate for U.K. growth in 2026 to 0.8% from 1.3%, the largest downgrade of any major developed economy. The organization cited Britain's reliance on gas imports, as well as expectations for fewer interest-rate cuts.
The U.K., as a large energy importer, is exposed to jumps in global energy prices. Motor-fuel inflation in March climbed to its highest level since the first month of 2023, when markets were still managing the impact of the Ukraine war on energy supplies.
"The adverse effect of the war in Iran on the economy is likely to show in the second quarter. We expect growth to slow, as higher costs and softer demand continue to weigh on activity," said Yael ?Selfin, chief economist at KPMG U.K.
The intensity of the impact on growth and inflation remains uncertain. The Bank of England at its last meeting in April issued three different scenarios for the path of the economy, stressing the future depends on the size and duration of the energy-price shock due to the war. Investors price in one or two interest-rate hikes this year, with some anticipating one as soon as the next meeting in June, a reversal of cuts expected before the war.
There are lingering questions, too, about whether the economic momentum in the early part of 2026 mirrors similar episodes in recent years, when growth has slowed down toward the fall and winter. The ONS said that there have been large changes in seasonal patterns since the pandemic, and its estimates of seasonal factors have evolved in response.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
05-14-26 0430ET
