UK economy posts stronger-than-expected growth ahead of Iran conflict

The UK economy recorded a stronger-than-expected expansion in early 2026, according to the Office for National Statistics, with growth picking up momentum in the months leading up to escalating global tensions.

Figures released today show real gross domestic product (GDP) grew by 0.5% in the three months to February 2026, an improvement on the 0.3% growth recorded in the previous three-month period and a notable rebound from stagnation at the end of 2025. The upward revisions to earlier estimates suggest the economy entered the year on firmer footing than initially thought.

The services sector, which dominates the UK economy, was the primary driver, expanding by 0.5% over the three-month period. Production output also contributed strongly, rising by 1.2%, although this marked a slight slowdown from the previous period. In contrast, construction remained a drag on growth, shrinking by 2.0% after consecutive declines.

On a monthly basis, the data paints an even more upbeat picture. GDP rose by 0.5% in February alone, significantly outperforming City forecasts of just 0.1% and marking the strongest monthly growth in over two years. Both services and production increased by 0.5%, while construction rebounded with a 1.0% rise.

Economists said the figures reflect a wave of business optimism at the start of the year.

“While the months ahead may start to look different, one thing holds true – certainty is the fuel that keeps growth moving. When businesses have clarity, they invest, plan and generally feel more confident,” he said.

“With global conflict now weighing down on markets and driving up costs, we can’t afford to lose these green shoots of growth. It’s important we act now to ensure conditions remain supportive for businesses – regardless of the ups and downs – backing firms with the funding, clarity and direction they need to thrive.” 

However, the figures come with a major caveat: they largely predate the outbreak of conflict involving Iran at the end of February, triggered by actions under US President Donald Trump. The escalation has already sparked an energy shock and heightened fears of a global slowdown.

The International Monetary Fund this week downgraded its UK growth outlook, warning the country could be among the hardest hit advanced economies if instability persists.

Policymakers are also treading carefully. Bank of England Governor Andrew Bailey said the central bank would not “rush to judgments” on interest rate changes in response to the volatile global backdrop.

Despite the uncertainty ahead, the latest data suggests the UK entered the crisis period with more economic momentum than expected. Whether that resilience can be sustained will depend heavily on how long geopolitical tensions — and their economic fallout — continue.