UK growth slows as Iran war lifts energy costs

UK output grew 0.4% in the three months to June as energy costs rose in the wake of the Iran war, according to the Office for National Statistics. The pace was slower than the previous quarter’s 0.6%, with industrial production flat even as services and construction expanded. The Guardian reports that June alone delivered 0.3% growth, above economists’ expectations, in a month when households were still shielded by the energy price cap.

That cap moved the timing of the shock rather than removing it. Analysts cited by the Guardian expect higher oil and gas prices to weigh on growth through the rest of 2026, and the price cap rose by 13% in July—after the quarter being measured. The result is a familiar pattern: official GDP prints can look steady while the cost base for households and firms is being reset in the background, with the bill arriving later through utilities and interest rates.

The composition of growth hints at where the economy is and is not absorbing the hit. Services output rose 0.5% in the quarter, and the information and communication segment grew 2.7%, led by computer programming. Construction grew 0.3%. But manufacturing and energy were flat, leaving the tradable, energy-intensive parts of the economy with less momentum just as imported fuel becomes more expensive.

Business groups are already translating geopolitics into domestic balance sheets. The British Chambers of Commerce warned that higher costs driven by the conflict are “choking” long-term growth, the paper reports, a complaint that tends to surface before investment plans are cut or postponed. Meanwhile inflation is expected to tick up, with July’s figure forecast to exceed June’s 2.6% as higher utility bills feed through. If inflation stays elevated, the Bank of England faces renewed pressure to keep rates higher, turning an energy shock into a financing shock for mortgages and corporate borrowing.

The political system is responding with the tools it has left: shifting taxes and adjusting bill support. The Guardian notes that the chancellor is preparing a budget later in the year, while Andy Burnham has announced a VAT cut for electricity bills and argued for broader support. Each intervention changes who pays and when, but it does not change the underlying dependency on energy routes that can be disrupted far from British waters.

The quarter’s growth number was published before households saw the July jump in capped bills. The ONS series will record that change in later months, one utility payment at a time.