UK economy grew faster than expected in March

The UK's economy grew by 0.6% in the first three months of the year, helped by a stronger than expected performance in March.

Growth in the quarter was led by a rebound in areas such as retailing and construction, figures from the Office for National Statistics (ONS) showed.

In March, the first full month since the outbreak of the Iran war, the economy grew by 0.3%, confounding forecasts of a small contraction.

However, analysts expect growth to weaken in the months ahead as the impact of the Iran conflict continues to filter through to the economy.

The ONS said the boost to the services sector in the first three months of the year was driven in particular by strong performance in wholesale, computer programming and advertising.

Liz McKeown, the ONS's director of economic statistics, said the construction industry had also returned to growth, "though only partly reversing weakness at the end of last year".

Chancellor Rachel Reeves told the BBC that she would set out more support for families and businesses affected by the war next week.

"The economy is growing strongly, and because of that growth we'll be able to do more to invest in our public services and to support families and businesses with the cost of living," she said.

But in a reference to the current speculation about the prime minister's position, Reeves said: "We shouldn't put [economic stability] 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."

Shadow chancellor Mel Stride said Labour said the "chaos surrounding the Labour leadership is destabilising Britain's economy".

"This week, borrowing costs hit their highest level in 30 years as Labour leadership contenders competed to promise even more spending, borrowing and fantasy economics."

Rising prices

Yael Selfin, KPMG's chief economist, said the impact of the Iran war on the economy was likely to be more pronounced in the second quarter of the year.

"Households are under renewed pressure as energy and petrol prices climb. Food costs are also expected to rise, with disruptions to fertilisers and other essential inputs," she said.

"These increases are likely to weigh on disposable incomes, dampening demand and posing a significant challenge to economic activity over the coming months."

GDP figures can be revised up or down in future months. While March's growth was higher than expected, the estimate for February was revised down from 0.5% to 0.4%, and January's was reduced from 0.1% to zero.

Luke Bartholomew, deputy chief economist at Aberdeen Investments, said the growth figures would not matter much to markets, "given how things have moved on since then".

"Higher energy prices will weigh on growth, stunting any recovery that might otherwise have been occurring," he said.

"And ongoing political uncertainty is likely to weigh on investment given the possibility of a significant change in fiscal policy."

Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest growth figures would "be the high point for the year" given the effects of the war in Iran.

"We would be very surprised if growth doesn't weaken from May as the temporary boost from stockpiling unwinds and the squeeze on households' real incomes from higher energy prices intensifies.

"In our adverse scenario, the economy suffers a mild recession. So the economy will probably give whoever is prime minister a rough ride."