UK Economy Projected to Shrink 0.1% as Iran Energy Shock Hits Growth

Key Facts

1Economists expect the UK economy to have contracted by 0.1% in April due to the energy price shock from the war in Iran.

This negative outlook arrives at a sensitive juncture as the UK economy faces dual pressures from foreign and domestic fronts, threatening the stability of its recent recovery. According to reports, economists expect the UK economy to have contracted by 0.1% in April, driven by the energy price shock resulting from the war in Iran. This projected reversal of growth momentum is attributed to the delayed impact of high energy costs on businesses and consumers, alongside political uncertainty regarding the Labour Party leadership.

The anticipated contraction aligns with a broader slowdown in the UK construction sector, where market data showed the Construction PMI falling to 38.2 in June, missing the forecast of 40.2 per market data. In comparison to other major economies, the Eurozone also reported a 0.2% quarterly GDP contraction according to market data released on June 5, highlighting a challenging European economic environment burdened by persistent inflationary pressures.

Investors should closely monitor the upcoming speech by Governor Andrew Bailey for signals on monetary policy shifts in response to these headwinds. Markets are also weighing the Halifax House Price Index, which showed a modest 0.5% annual increase as of June 5, 2026. These indicators, combined with the official GDP release, will be critical catalysts for Sterling's trajectory in the coming weeks.