UK economy performing better than expected before Iran war chaos

Chancellor Rachel Reeves (Image: Ian Vogler / Daily Mirror)

Rachel Reeves' task in attempting to revive the UK's sluggish economy has been underlined by new figures showing it grew by 0.5% in February, a significant rebound after failing to grow at all the previous month. The Office for National Statistics (ONS) confirmed that services, the largest sector of the economy, rose 0.5% and acted as the primary driver of the expansion.

Production also increased by 0.5% during the month, boosted by a recovery in car manufacturing following an autumn cyber incident. However, the construction sector continued to struggle. Despite a 1.0% rise during the month, construction output fell by 2.0% on a three-month basis. Previous data was also revised slightly higher, with January's monthly growth adjusted from zero to 0.1%, while GDP was found to be 1.0% higher than in February 2025.

Rachel Reeves warns of economic challenges from Iran war

ONS Chief Economist Grant Fitzner commented: "Growth increased further in the three months to February led by broad-based increases across services.

"Within services, growth was driven by wholesaling, market research, hospitality, and publishing, which all performed well in the three months to February. Meanwhile car production recovered from the effects of the autumn cyber incident.

"Growth in services and production was partially offset by another fall in construction, albeit at a slower rate than previously, with leasing and intellectual property licensing also continuing to contract."

The data follows a period of stagnation at the start of 2026, where the economy flatlined in January, missing expectations of a 0.2% increase.

These sluggish figures preceded the recent flare-up of conflict in the Middle East, which has since sent oil prices above 100 US dollars for the first time in nearly four years.

Speaking in Washington on Wednesday, the Chancellor voiced her concern about Donald Trump's war on Iran, describing the conflict as a mistake that directly threatens British economic stability. She warned that as a net importer of gas, the UK is heavily impacted by the resulting energy spikes.

Ms Reeves joined 10 other countries in a call for de-escalation, stating that national growth would be higher and inflation lower if the conflict were brought to an end.

This follows a period of meagre growth of just 0.1% in the final three months of last year, a trend the Treasury is desperate to reverse.