Britain’s Economy Rebounds 0.5%, but Iran War Energy Shock Looms

Britain’s economy delivered a sharp rebound in February, but the more important number may be the one it cannot yet show: the cost of the energy shock now rolling through households and businesses. The Office for National Statistics said gross domestic product rose 0.5% month on month, far ahead of the 0.2% economists had expected, and the strongest monthly increase since January 2024. For Rachel Reeves, it offered a brief lift. For the wider economy, it was a reminder that the country entered the Middle East crisis from a better starting point than many had feared, even if that advantage may now be fading fast.

The February figures were broad-based. Services and production each grew 0.5% in the month, while construction rose 1.0%. Over the three months to February, GDP was up 0.5% compared with the three months to November, with services rising 0.5% and production 1.2%, though construction fell 2.0%. Grant Fitzner, the ONS chief economist, said growth over the period was led by services and noted that car production recovered after the autumn cyber incident. January GDP was revised up to 0.1% growth from no growth, while December remained unchanged at 0.1%.

The catch is that the ONS data end before the Iran conflict began on 28 February, leaving the latest energy shock outside the official growth numbers. That matters because Britain is highly exposed to imported natural gas, making it more vulnerable than some peers to higher fuel costs, supply disruption and a fresh burst of inflation. Fergus Jiminez-England, an associate economist at the National Institute of Economic and Social Research, said the energy-price shock had likely “pulled the rug from under the momentum,” warning of another year of above-target inflation and a softer labor market.

The pressure is already visible in market and policy moves. A House of Commons Library briefing said the Israel/US-Iran conflict disrupted oil and gas flows across the Middle East, with Strait of Hormuz shipping sharply reduced and the International Energy Agency estimating that around 20 million barrels of oil per day were affected in mid-March. It also said Gulf oil production had been cut by at least 10 million barrels a day, about 10% of global output, while UK wholesale natural gas prices rose roughly 75% between late February and 23 March.

The Bank of England responded by holding Bank Rate at 3.75% on 18 March, tying its decision directly to higher global energy and commodity prices. The risk for Britain is that a seemingly solid February rebound proves temporary, overtaken by pricier fuel, weaker demand and the familiar drag of low productivity and stubborn inflation. For Western economies more broadly, the lesson is less about one month of growth than how quickly a geopolitical shock can erase it.