Overall, the UK economy fared better than expected in the first quarter of the year. The latest data gave us the first real measure of economic performance since the Middle East conflict began, and the figures were, once again, surprisingly positive. But as encouraging as signs of GDP resilience are, the outlook may not be as promising as the numbers suggest when put into context.

Inflation fell more than expected in April, but the rate was held down by the energy price cap that was set before the war began — a condition that won’t hold for long. What’s more, the jobs market is beginning to reflect the tensions businesses are experiencing. Vacancies reached a five-year low and annual regular pay growth continued to fall, pointing to deterioration in the labour market.

So, although the headline data appears hopeful, we can expect conditions to weaken further as geopolitical tensions continue to develop. For now, we have summarised the latest figures and the conditions shaping forecasts.

GDP – March 2026

• Over the three months to March compared with the three months to December 2025, UK GDP rose 0.6%. This made the UK the fastest growing economy in the G7 this quarter.
• Services output grew by 0.8% (following a growth of 0.6% in the three months to February), marking the largest contribution to growth. Production output grew by 0.2% (following a growth of 1.1% in the three months to February) and construction output grew by 0.4% following five consecutive three-monthly falls.
• Despite economists’ forecasts that monthly GDP would fall by 0.2% in March 2026, the latest figures showed a surprise growth of 0.3%. This followed a growth of 0.4% in February and no growth in January (revised down from growths of 0.5% and 0.1% respectively).
• The largest negative contribution to monthly GDP was from travel agency, tour operator and other reservation service and related activities (-6.4%), suggesting consumers started rethinking holiday plans due to the Middle East conflict.

Inflation – April 2026

• The CPI rate rose by 2.8% in the year to April 2026 — the lowest rate in more than a year — down from 3.3% in the 12 months to March. This slowing of inflation has been attributed to a reduction in the household energy price cap softening the sharp rise in fuel costs since the outbreak of war in Iran.
• Core CPI (excluding energy, food, alcohol and tobacco) rose by 2.5% in the same period, down from 3.1% in the 12 months to March. The CPI goods annual rate rose from 2.1% to 2.4%, while the CPI services rate fell from 4.5% to 3.2%.
• Housing and household services (primarily electricity and gas) made the largest downward contribution to the monthly change in CPI rates, partially offset by an upward contribution from clothing and footwear. The largest upward contribution came from motor fuels, which have recorded an overall price increase of 23% in the 12 months to April 2026, the highest annual increase since September 2022, following a rise of 4.9% in the year to March.
• Economists warn that the drop in inflation is unlikely to last, referring to April’s slowdown as ‘a last interlude before the Iran war-induced inflation storm hits’. The Bank of England is expected to hold interest rates again at 3.75% at its next meeting in June but is prepared to push up the cost of borrowing if inflation rises.

Employment

The latest Office for National Statistics labour force and employment data show:

• UK unemployment rates bounced back up to 5% in the three months to March 2026, an unexpected increase from the 4.9% recorded in the three months to February.
• Young people continue to be hit hardest, with the unemployment rate for 18-to-24-year-olds rising to 14.7% in the three months to March. This is the highest level since November 2014.
• In the period of January to March 2026, the inactivity rate for people aged 16 to 64 years was 20.9%. This is down 0.4% on the year, but up 0.1% on the latest quarter.
• Vacancies fell by 28,000 (3.9%) to 705,000 between February and April, the lowest level in five years. Experts warn that this is a worrying sign for the labour market, suggesting that demand for staff is ‘deteriorating quickly amid global headwinds and the growing financial squeeze on firms’.
• Annual regular pay growth continued to fall to 3.4% in the three months to March 2026, the lowest it’s been since October 2020. Adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), annual wage growth in real terms was 0.1% for regular pay and 0.8% for total pay in January to March 2026.

Insolvencies – April 2026

There were 2,085 company insolvencies reported in England and Wales in April 2026, a 2% increase compared to March 2026 (2,037, amended) and a 3% increase YoY (2,028, amended). The biggest upward contributor compared to the same time last year was in administrations (183), which saw 78% higher rates than April 2025. However, the last two months were affected by approximately 200 connected real estate companies entering administration. Compulsory liquidations in April 2026 were also higher than the monthly average in 2025. While the insolvency rate has increased since the lows seen in 2020 and 2021, The Insolvency Service notes that it remains much lower than the peaks seen during the 2008–09 recession.

Meanwhile, there were 10,920 personal insolvencies recorded in April 2026. This was 10% lower than in March 2026 but 7% higher than in April 2025. Interestingly, there was a 33% decrease in Breathing Space registrations in April 2026 (4,862) compared with April 2025. This decline has been attributed to a leading money advisory group updating its suitability criteria for clients to apply for the scheme in December 2025.

Compounding pressures cloud the outlook for the rest of 2026

The Iran conflict has now passed the 90-day mark with no resolution in sight. Despite repeated White House promises of an imminent peace deal, sporadic hostilities have continued in the region since a ceasefire was announced in April.

As a result, the OECD has warned that prolonged disruption could push more economies into recession. In its latest forecast, UK GDP is expected to grow by just 0.9% this year — an improvement on earlier predictions, but still a drop from 1.4% last year. The energy price cap is set to rise in July, leading forecasters to predict CPI will go back up to 3.5% towards the end of the year. And whilst the Bank of England has reaffirmed its cautious approach to rate decisions, increases are likely if pressures persist.

If all of this wasn’t enough to erode business confidence, the threat of new US tariffs on international trading partners and EU-imposed steel tariffs could create new challenges in the coming months.

Domestically, Tony Blair’s public criticism of Keir Starmer and the government’s economic programme has also intensified questions about the Labour party’s direction, with a crucial upcoming by-election in Makerfield adding further pressure on the Prime Minister’s leadership.

There is a collective sense of held breath as political leadership uncertainty, shifting trade policy and geopolitical tensions continue to escalate. Until the outlook becomes clearer, businesses that plan cautiously and for multiple scenarios will be better placed to navigate what remains an unpredictable second half of the year.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our specialists, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.