Don't risk stability warns Reeves, as figures reveal unexpected economic growth

The UK economy unexpectedly grew during first month of the Iran war, new official figures reveal.

GDP, a key economic measure of everything produced in the economy, expanded 0.3% in March, according to the data from the Office for National Statistics (ONS).

Economists polled by Reuters news agency had predicted a contraction of 0.2%.

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It came as production and construction held up well in the face of higher energy costs, as the Iran war led to oil and gas supply disruption. There had been fears that economic activity would be dampened by higher prices for people filling their cars or heating their homes with oil.

The March figures are also an increase on the month before, when GDP rose 0.4%.

There was also growth in the first three months of the year, with expansion of 0.6%, ONS data also showed on Thursday morning.

It means the UK currently has the greatest GDP growth of all the G7 group of industrialised nations, though Japan has yet to release data.

Why?

This was attributed to "broad-based" expansion in the services sector, the largest part of the UK economy, the ONS said.

Performing particularly well were computer programming and advertising, the ONS's director of economic statistics, Liz McKeown said.

The numbers are even better on a per-person basis, which removes the effect of population growth via immigration that can increase the headline GDP figure.

So-called GDP per capita is up 0.9% compared with the same time a year ago.

Getting political

Following the news, Chancellor Rachel Reeves appeared to caution against political instability and a possible leadership challenge against Prime Minister Keir Starmer.

"Now is not the time to put our economic stability at risk. To do so would leave families and business worse off," she said.

"Today's figures show the government has the right economic plan."

The government had repeatedly said growing the economy was its top priority.

A note of caution

The strength of the figures, however, could have been impacted by companies' reaction to the Iran war-related supply disruption.

"GDP strength is exaggerated by front-running of potential supply disruptions and noise in some sectors," said economic research firm Pantheon Macroeconomics's chief UK economist, Rob Wood.

"So we need to be cautious about judging the genuine trend."

Economists still believe the war will slow growth.

"The war in Iran is set to slow growth, lower typical household incomes by £550 this year and increase government borrowing by £16bn by the end of the decade. All of which presents a challenging backdrop to any government reset," said Simon Pittaway, a senior economist at the Resolution Foundation thinktank.

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