The UK economy grew by a surprise 0.5% in the three months to February 2026, ahead of the onset of the crisis in the Middle East.
The Office for National Statistics reports that gross domestic product (GDP) growth was led by the services sector, up 0.5%, while manufacturing rose 1.2%. Conversely, construction output fell 2%.
Commenting on the GDP figures, ONS chief economist Grant Fitzner said: “Growth increased further in the three months to February led by broad-based increases across services.
“Within services, growth was driven by wholesaling, market research, hospitality and publishing, which all performed well in the three months to February. Meanwhile car production recovered from the effects of the autumn cyber incident.
“Growth in services and production was partially offset by another fall in construction, albeit at a slower rate than previously, with leasing and intellectual property licensing also continuing to contract.”
The strong growth came as a surprise to leading economists, whose consensus forecast a smaller 0.1% rise.
However, the latest figures failed to account for the Middle East crisis which began on 28 February 2026.
The crisis has prompted economists to downgrade UK economic expectations in the months ahead as consumers and businesses grapple with surging oil and other energy price rises.
The International Monetary Fund (IMF) has forecast that the UK economy will face the biggest hit to its GDP growth among major world economies, downgrading estimates from 1.3% annual growth to just 0.8%.
It has also forecast the UK to have the highest inflation among G7 economies this year at 3.2% and 2.4% in 2027.
Effects on household finances
The crisis in the Middle East is having an immediate impact on household finances, chiefly through rises in petrol and diesel prices.
The mortgage market has been adversely affected too as interest rate expectations adjust higher on the back of higher inflation expectations.
However, the mortgage market has now seen some lenders beginning to lower rates after a raft of rate hikes.
Stock markets have now brushed off concerns, with the S&P 500 – which tracks major US companies – now back at record highs after indications that the war could be entering its end stages.
There is also a rising suggestion that the Bank of England – despite inflation concerns – might be cautious about hiking its base rate.
Overall the picture is complex for families dealing with a myriad of different effects from the geopolitical situation which are by their nature short-term events. If you have any concerns or doubts it is important to speak to a financial planner before making any knee-jerk decisions about your longer-term plans.