Middle Eastern shock waves appear: UK strong start to the first quarter abruptly halted, with GDP falling 0.1% in April.

Notice that the strong start to the year in the UK came to a sudden halt in April as the impact of the Middle East situation began to affect the real economy. Data released by the UK Office for National Statistics on Friday showed that after two consecutive months of growth, GDP fell by 0.1% compared to the previous month. This data aligns with the median forecast of economists. The service sector contracted by 0.2%, offsetting the growth in manufacturing and construction. These figures set the stage for a lackluster second quarter. Currently, businesses and consumers are grappling with high energy costs and high loan rates triggered by the Iran conflict. Prior to this, the UK had a strong performance in the first quarter, leading the Group of Seven (G7) in economic growth. However, market expectations for interest rate cuts have now reversed to expectations of rate hikes. Meanwhile, as businesses and households stockpiled to avoid high prices at the onset of the conflict, the economic boost effect is beginning to fade. This report will support the views of Bank of England policymakers, who currently do not seem eager to respond to the energy shock caused by the Iran conflict with rate hikes. The decision of when or whether to hike rates essentially balances the fight against inflation and alleviating weak demand, with Bank of England officials like Andrew Bailey seemingly placing greater weight on the latter (weak demand). The economic slowdown has also added pressure on beleaguered UK Prime Minister Keir Starmer, who is facing the prospect of a leadership challenge in the coming weeks.