UK economy began to feel fallout from Iran war in April, data shows
Impact of Iran War on the UK Economy
By Andy Bruce and Suban Abdulla
Economic Contraction and Sector Performance
LONDON, June 12 (Reuters) - Britain's economy contracted by 0.1% in April, its first monthly drop since August as the Iran war's cancellation of Formula 1 Grand Prix races and other Gulf sporting events delivered a blow to the British entertainment industry.
Friday's data from the Office for National Statistics (ONS) showed the first clear signs of an impact from the U.S.-Israeli war on Iran in terms of British economic growth.
Services Sector Decline
Output in the dominant services sector declined in April by 0.2%, dragged down by administration and support services, as well as the arts, recreation and entertainment sectors.
An ONS official said there were reports that cancellation of sporting events in the Middle East had hit related British firms.
Sporting Event Cancellations
The outbreak of war resulted in the cancellation of Formula 1 Grand Prix races in Bahrain and Saudi Arabia, which had been due to take place in April. Tennis and soccer events were also called off.
Expert Opinions and Market Reaction
Thomas Pugh, chief economist at tax and consultancy firm RSM, said the outlook was set to worsen.
"Higher energy prices and borrowing costs along with a renewed bout of political uncertainty are likely to conspire to bring growth almost to a standstill for the rest of the year," Pugh said, adding that the data added to a sense the Bank of England was likely to leave interest rates on hold next Thursday.
Investors showed little reaction to Friday's figures, with the pound steady and financial markets continuing to price in only a small chance of a rate hike this month, with one fully priced in for November.
Government Response
Responding to the ONS data, finance minister Rachel Reeves said the war in Iran would have an impact on the economy but that her plan was the right one.
Other Economic Indicators
Manufacturing and Construction Output
Manufacturing output rose by 0.4% in April - helped by a rise in pharmaceuticals production which often sees large swings - helping to offset a bad month for the services sector. Construction output also grew modestly.
Overall economic output in the three months to April was 0.7% higher than the previous three months, as economists had expected.
Trade Data and Fuel Imports
Separate trade data showed the value of fuel imports surged in April to £7.1 billion ($9.52 billion), the highest reading for three years, reflecting both the surge in oil prices following the outbreak of war and Britain's high dependence on imported energy.
($1 = 0.7459 pounds)
(Reporting by Andy Bruce and Suban Abdulla; Editing by William James)
