Reeves: GDP figures show we have the right economic plan
Chancellor Rachel Reeves highlighted the UK economy's stronger-than-expected growth in March as evidence of the government's effective economic strategy.
"Today’s strong growth figures show the Government has the right economic plan.
The choices I have made as Chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran.
Now is not the time to put our economic stability at risk."
The final sentence appeared to caution colleagues considering leadership changes that might affect the prime minister and chancellor positions.
Experts: Q1 growth spurt may be as good as it gets in 2026
Several analysts warn that the growth seen in the first quarter may represent the peak for the year.
Ruth Gregory, deputy chief UK economist at Capital Economics, expressed skepticism about sustained growth beyond April:
"GDP rose by a bumper 0.6% q/q in Q1 (consensus and CE forecast 0.6%), but this will be the high point for the year given the effects of the war in Iran will sap growth from Q2. In our baseline scenario, the economy doesn’t grow at all in Q2 and Q3. Prolonged political instability is an extra downside risk to our forecasts."
Michael Brown, senior research strategist at Pepperstone, also anticipates the Q1 growth to be the peak:
"Risks remain clearly tilted to the downside moving forwards, principally as a result of the ongoing Middle East conflict, and subsequent surge in energy prices, which will in turn impact the economy in the manner of a significant negative demand shock, over the next couple of quarters.
Added to which, renewed political uncertainty in Westminster is also likely to act as a significant headwind to the economy at large, not only delaying major investment decisions, but with said uncertainty having also resulted in considerably tighter financial conditions as a result of the recent sell-off in Gilts across the curve."
Raj Badiani, economics director at S&P Global Market Intelligence, forecasts a mild contraction later this year:
"The UK economy outperformed in the first quarter of this year with growth reaching 0.6% quarter over quarter, despite being at odds with lacklustre survey indicators during this period. This continues the recent pattern of unexpectedly strong growth in the first quarter of the year, while stockpiling of some goods ahead of anticipated shortages arising from the Iran war lifted demand in March.
Nevertheless, recession risks have risen, and we now expect the UK economy to contract mildly in the second and third quarters of this year. The main driver is a prolonged energy price shock pushing headline inflation above 4.0% in the coming months, and the resulting pressure on the Bank of England to raise interest rates to counter emerging “second-round” effects."
Computer programming and advertising had strong growth in Q1
Liz McKeown, ONS Director of Economic Statistics, commented on the GDP report:
"Growth picked up in the first quarter of the year, led by broad-based increases across the services sector. Within that wholesale, computer programming and advertising performed particularly well.
Production also grew slightly, while construction returned to growth, though only partly reversing weakness at the end of last year."
Construction sector surged in March
The Office for National Statistics reported a 1.5% increase in UK construction output in March, driven by new building work and repairs.
"The increase in monthly output in March 2026 came from increases in both new work, and repair and maintenance, which grew by 2.0% and 0.8%, respectively. At the sector level, the main contributor to the monthly increase was private housing new work, which grew by 2.8%."
This followed a decline in new building work during the latter half of the previous year.
UK quarterly growth rises to 0.6%
The ONS reported that UK GDP increased by 0.6% in the first quarter of 2026, up from 0.2% in the final quarter of 2025.
Growth occurred across all three major sectors: services output rose 0.8%, production output increased 0.2%, and construction output grew 0.4%.
UK economy beats forecasts with growth in March
The UK economy expanded by 0.3% in March 2026, surpassing expectations of a 0.2% contraction, according to the ONS.
This followed 0.4% growth in February and a revised flat result for January, down from earlier estimates of 0.5% and 0.1% growth respectively.
Services and construction output grew by 0.3% and 1.5%, respectively, partially offset by a 0.2% decline in production.
Bank of England Deputy Governor Sarah Breeden stated that interest rates are unlikely to rise in June or July.
"We’ve got time to understand firstly the size of the shocks and secondly, how the economy is evolving.
You’re obviously correct that we can’t wait forever, but we don’t need to do it in June or July."
Breeden added:
"We don’t need to rush to act."
Housing market in England and Wales weakening due to Iran war, say estate agents
Estate agents report that the Iran conflict and increased borrowing costs are dampening the UK housing market.
Tom Knowles reports:
"Fears of higher mortgage rates and rising inflation as a result of the Middle East conflict are leading to a subdued and downbeat housing market, according to estate agents.
Demand from potential homebuyers across England and Wales has shown a “noticeable softening” recently, according to a monthly survey of estate agents by the Royal Institution of Chartered Surveyors (RICS).
Members have told the professional body that buyers and sellers are becoming more cautious, and many agents have cited clients who are worried about whether inflation and interest rates will rise in the coming months, leading to slower sales, fewer homes on the market, and more price-sensitive buyers."
Introduction: It's UK GDP day
Good morning. The first estimate of UK gross domestic product (GDP) for March and the first quarter of 2026 was released at 7am, providing insight into the economic impact of the Iran war's early weeks.
Economists anticipated that the Middle East conflict, which began at the end of February, would negatively affect UK activity, with a consensus forecast of a 0.2% GDP decline in March, reversing February's 0.5% growth.
For the first quarter overall, experts predicted 0.6% growth, up from 0.1% in the final quarter of 2025.
The outlook for 2026 remains challenging, with rising energy prices and increasing food inflation expected to weigh on the economy.
Fergus Jimenez-England, associate economist at the National Institute of Economic and Social Research (NIESR), expressed concerns about the year ahead:
"The UK economy is in a state of transition. It began the year with some momentum, as business sentiment recovered following the Autumn Budget, but conflict in the Middle East has since stifled that momentum.
As businesses adjust to this latest energy shock, leading indicators are sending mixed signals. Input price inflation has picked up sharply and job vacancies continue to fall, pointing to softer demand conditions ahead. At the same time, retail sales and PMIs have held up, although some of this strength may reflect firms and households bringing forward spending in anticipation of further price rises."
The agenda
- 7am BST: UK GDP report for Q1 2026
- 7am BST: UK trade report for Q1 2026
- 9.30am BST: Survey of economic activity and social change in the UK
- 10.30am BST: Resolution Foundation event: Resetting Government economic priorities for the remainder of the Parliament
- 1.30pm BST: US retail sales for April
- 1.30pm BST: US initial jobless claims
