Chancellor Emphasizes Economic Stability Amid Iran War
The chancellor has pointed to official data indicating the UK economy's resilience during the early stages of the Iran war as justification for maintaining the current Labour leadership.
Rachel Reeves praised the unexpected economic growth in March, the first month of the Iran conflict, as evidence that the government has implemented "the right economic plan".
"Now is not the time to put our economic stability at risk. To do so would leave families and business worse off," Reeves stated, indirectly addressing internal Labour party disputes involving Keir Starmer.
Official Statistics Show Positive Economic Performance
Data from the Office for National Statistics (ONS) revealed a 0.3% increase in gross domestic product (GDP) in March, surpassing economists' expectations of a 0.2% contraction.
For the first quarter of 2026, GDP grew by 0.6%, a notable rise from 0.1% growth in the last quarter of 2025, positioning the UK as the fastest-growing economy among the G7 nations. Additionally, the economy expanded by 1% compared to the same period in 2025.
Government's Economic Strategy Affirmed
Reeves asserted that these figures confirm the government's economic strategy is effective.
"We shouldn’t put that at risk by plunging the country into chaos at a time when there is conflict in the world, but also at a time when our plan to grow the economy is starting to bear fruit," she told the BBC.
She announced plans to introduce further measures next week to assist families and businesses facing challenges arising from the Middle East conflict. Any financial aid for households will be targeted to those most in need.
Political Implications for Labour Leadership and Chancellor Role
Speculation persists that if Keir Starmer is replaced as prime minister, Reeves might also lose her position as chancellor, as a new leader may seek to appoint a different chancellor to signal change.
However, amid ongoing political instability, Reeves' allies suggest a successor might retain her to stabilize bond markets and reassure investors that fiscal discipline will continue.
Sectoral Contributions to Growth and Impact of Middle East Conflict
The ONS reported that first-quarter growth was "led by broad-based increases" in the UK's dominant services sector, which expanded by 0.8%. Notably, the computer programming and advertising industries performed particularly well. Construction also returned to growth, increasing by 0.4%, driven primarily by repair and maintenance activities rather than new construction projects.
Conversely, the largest negative monthly impact on GDP was a 6.4% decline in travel agency and tour operator activities, indicating that the Middle East conflict influenced consumer decisions regarding holidays.
The March data is among the first official indications that the Iran war, which began on the last day of February, has not severely disrupted business and consumer activity as initially feared, despite concerns over supply chain issues due to the closure of the Strait of Hormuz.
Economic Expert Perspectives
Ruth Gregory, deputy chief UK economist at Capital Economics, commented:
"The economy performed remarkably well in the early stages of the energy price shock … but this will be the high point for the year given the effects of the war in Iran will sap growth from the second quarter."
The GDP results align with some business surveys suggesting the economy has maintained momentum despite the Middle East turmoil.
The closely monitored purchasing managers index (PMI) for the UK indicated growth driven by increases in manufacturing production and services sector output. The ONS also noted that growth occurred even when excluding the impact of rising fuel costs.
Nonetheless, economists remain cautious about sustained growth into the second quarter, suggesting some of the increase may be attributed to businesses and consumers stockpiling goods, fuel, and raw materials ahead of potential supply shortages and higher borrowing costs. Yael Selfin, chief economist at KPMG, stated:
"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."
Seasonal Trends and Statistical Considerations
In recent years, the UK has frequently reported stronger-than-expected GDP figures early in the year, followed by a slowdown later. Some economists have suggested this pattern may indicate that the ONS's seasonal adjustment methods require refinement. The ONS has affirmed it will "keep estimates of seasonality under close review."
Monetary Policy Outlook
The Bank of England is anticipated to raise interest rates in response to rising inflation this year. However, its deputy governor, Sarah Breeden, told the Financial Times on Thursday:
"We can’t wait forever, but we don’t need to do it in June or July."
