UK Economy Grew 0.5% in February Before Iran War Clouds Outlook
The UK economy expanded by a better-than-expected 0.5% in February 2026, according to official figures released today by the Office for National Statistics — but economists warn the data represents the calm before the storm as the Iran conflict reshapes the country's financial prospects.
The ONS figures showed GDP growth of 0.5% in February, well ahead of the 0.1% forecast by economists. Over the three months to February, the economy also grew by 0.5%, driven by strong performances in the services and manufacturing sectors, as well as a recovery in construction output.
Key Developments
The services sector and manufacturing both registered 0.5% growth in February, while construction output increased by 1%. Growth within services was particularly strong in wholesaling, market research, hospitality, and publishing. The recovery of Jaguar Land Rover from a cyber-attack also contributed to the improving three-monthly picture.
However, the data predates the full economic impact of the US-Israeli war with Iran, which has since caused oil and gas prices to surge following the effective closure of the Strait of Hormuz. The International Monetary Fund has downgraded the UK's growth forecast for 2026 to 0.8%, citing the country's vulnerability as a net energy importer and predicting inflation to rise to 3.2%.
Background
Chancellor Rachel Reeves has stated that the US war on Iran was a "mistake," citing a report that the conflict would hit the UK harder than other major economies. Markets are now pricing in at least one quarter-point interest rate hike this year, a significant shift from previous expectations of a rate cut.
Bank of England Governor Andrew Bailey has indicated a cautious approach to rate adjustments given the uncertainties, while warning that the conflict poses a significant risk to the UK's financial system and economic growth.
Why It Matters
The UK faces a particularly difficult position as a net energy importer. Government officials have developed worst-case scenarios suggesting the country could face food shortages by summer if the Strait of Hormuz remains closed. The FTSE 100 has shown relative resilience due to its high concentration of energy, mining, and defence companies, but the broader economy faces significant headwinds.
What's Next
The government has delayed decisions on fuel duty and energy support until summer, creating uncertainty for businesses. Prime Minister Keir Starmer is working with allies to push for de-escalation in the Middle East, viewing it as the quickest way to alleviate pressures on prices. The UK and France are leading diplomatic efforts to reopen the Strait of Hormuz, critical for global energy supply.
Full details of the ONS figures are available at The Guardian.
