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Bank Of England · GDP · Middle East Conflict · UK Economy
The UK economy contracted by 0.1% month-on-month in April, as reported by the Office for National Statistics, ending a strong start to the year and reflecting the impact of higher energy costs stemming from the Middle East conflict.
This decline followed increases in February and March and was in line with market expectations. Services output, the largest component of the UK economy, decreased by 0.2%, which offset modest gains observed in the production and construction sectors.
This April contraction indicates a weaker start to the second quarter, contrasting sharply with the first quarter of 2026, when the economy expanded by 0.6%, marking the strongest growth among Group of Seven economies. During the first quarter, all three main sectors contributed positively to growth, with services rising 0.8%, production 0.2%, and construction 0.4%.
Businesses and households have faced elevated energy prices and borrowing costs since the Iran war, which has intensified inflation expectations and complicated the monetary policy outlook. The Bank of England is under pressure to address the energy-driven price shock, but the observed weaker economic activity limits the scope for aggressive interest rate increases.
