12 June 2026
If you are covering the latest UK GDP figures from the Office for National Statistics, please find below a comment from Stuart Clark, portfolio manager at Quilter:
“The effects of the conflict in the Middle East are now well and truly showing up in the economic data, and it isn’t pretty reading for the UK. After a surprisingly robust first quarter, April has seen GDP shrink by 0.1% as households and businesses alike have tightened their belts in the face of increasing costs and postponements of sporting events in the Middle East saw the services sector contract consequently. While the three-month growth has held up, the first quarter of the year is looking very much like a false dawn, and with repeated resolutions between the US and Iran failing to pass, conditions are going to remain tough for longer still.
“We expect the economy to continue to fade as the year goes on, and particularly for as long as there is no lasting peace deal in the Middle East. Even if a deal is to materialise, costs have increased and are unlikely to come back down to levels seen prior to the conflict, and as such growth will be constrained regardless. With higher energy costs hitting businesses, and a rise in the energy price cap looming for households, growth is likely to grind to a halt once again.
“This is making the job of the Bank of England incredibly difficult. With a stagflationary feel to the economy, the last thing it wants to be doing is to raise interest rates, but that is what is being priced in as inflation remains the bigger concern for now. As seen by the move by the ECB yesterday to raise rates and increaser their inflation projection for the rest of the year on the same day US producer inflation came in slightly hotter than expected.
“Furthermore, the UK increasingly looks like it will be plunged into further political crisis given events yesterday with the resignation of John Healey as Defence Secretary. With the crunch by-election in Makerfield on Thursday, coming the same day as the BoE interest rate decision and Andy Burnham appearing to be favourite to win, it appears to be a matter of when the leadership changes rather than if, with the bigger question being how long it takes. The longer this political limbo drags on, the more negative the impact for the UK, and in the event that Burnham succeeds Starmer, markets will be watching his government like a hawk for any indication that spending, taxation and borrowing continue to increase. The UK’s growth challenge seems to be perpetual.”
