Time to wrap up….

The chancellor has seized on official figures showing the UK economy was more resilient than feared at the start of the Iran war as evidence to keep the current Labour leadership in place.

Rachel Reeves hailed the fact that the economy unexpectedly grew in March, during the first month of the Iran war, as proof the government has “the right economic plan”.

“Now is not the time to put our economic stability at risk. To do so would leave families and business worse off,” Reeves said, in a barbed reference to the in-fighting within the Labour party as Keir Starmer fought to hang on to his job.

Figures from the Office for National Statistics (ONS) showed growth of 0.3% in gross domestic product (GDP) in March – significantly better than economists’ forecasts that GDP would shrink by 0.2%.

Economists, though, warned that this might be as good as it gets for the UK economy this year, as the Iran war pushed up energy prices and disrupts supply chains.

Here’s the full story:

And our analysis:

In other news….

• British government borrowing costs have hit a three-day low after health secretary Wes Streeting resigned, but didn’t trigger a leadership contest against Keir Starmer.

  Ten-year gilt yields are down 5 basis points down on the day at 5.01%, their lowest since May 11, while 30-year yields are also down 5bs at a three-day low of 5.69%.
  

• Traders have been shorting the pound this week, as the Labour leadership battle has gripped the markets.
  

• Food ingredients firm Tate & Lyle has received a takeover approach, lifting its shares by over 40%.
  

• Jaguar Land Rover has reported a 99% drop in profits.
  

• Britain’s competition watchdog is examining Microsoft’s position in the business software market

Jaguar Land Rover annual profit slumped by more than 99% as it counted the cost of US tariffs and a cyber-attack that disrupted its factories for months.

Britain’s largest carmaker made only £14m in profit before tax and exceptional items in the year to March, down from £2.5bn the year before, according to financial results published on Thursday.

The manufacturer, which employs 33,000 people in the UK, suffered a series of blows as Donald Trump’s automotive industry tariffs caused turmoil in its important export market.

That was followed by a damaging cyber-attack on the last day of August that forced the company to shut down most of its systems and factories for weeks, with disruption rippling on through the autumn.

Tate & Lyle, the food ingredients business, has become the latest UK company to receive a takeover approach.

US rival Ingredion Incorporated has proposed a possible cash offer valuing Tate & Lyle at 595p per share plus 20p of dividends.

Tate & Lyle says this proposal – which I think is worth £2.7bn – follows a number of earlier approaches from Ingredion, and the two sides are now discussing it.

Shares in Tate & Lyle have jumped by 44% to 540p.

Although synonymous with sugar and golden syrup, Tate & Lyle is actually an ingredients operation these days, making sweeteners, starches and food stabilisers for drinks, dairy products, soups, bakery goods and confectionary.

There’s drama in Westminster, where health secretary Wes Streeting has just resigned and called for a leadership battle.

In a letter to Keir Starmer, Streeting says he has “having lost confidence in your leadership”, citing the scale of the defeat in last week’s local elections, the government’s unpopularity, and accusing the PM of failing to provide a vision.

Urging the PM to start a leadership contest, Streeting writes:

It is now clear that you will not lead the Labour Party into the next general election and that Labour MPs and Labour Unions want the debate about what comes next to be a battle of ideas, not of personalities or petty factionalism. It needs to be broad, and it needs the best possible field of candidates. I support that approach and I hope that you will facilitate this.

UK bonds are holding onto their earlier gains, though – probably because Streeting has not triggered a leadership battle. The yields on 10- and 30- year bonds now down around 5 basis points, meaning the cost of borrowing remains slightly lower today.

UK government borrowing costs are continuing to drop today, as investors await developments in the Labour Party leadership tussle.

The latest word from Westminster is that health secretary Wes Streeting is locked in a standoff with No 10, with his allies claiming he had the numbers to launch a leadership challenge but still hoped Keir Starmer would resign.

Streeting would need the backing of the 81 MPs required to launch a formal contest; my colleague Jessica Elgot reports that a source close to Streeting said he had the numbers but “things are shifting”.

In the meantime, UK government bond prices are rising. This has pulled the yield (or interest rate) on 30-year gilts down by 5 basis points (0.05 of a percentage point) to 5.69%, away from the 28-year high of 5.81% set earlier this week as pressure on Starmer heightened.

Ten-year bond yields are also down around 5bps to 5.02%.

Trade war news: The US has cleared around 10 Chinese firms to buy Nvidia’s second-most powerful chip in a move that could clear the way for the end of the stand-off over tech rivalry.

China dominates the global supply of legacy chips, the older style chip used in everything from washing machines to smart phones, cars and medical devices.

But it lags behind on advanced chips, designed by the likes of Nvidia, used to drive artificial intelligence learning.

The presence of Nvidia CEO Jensen Huang, who was not originally expected to join Donald Trump’s trip, has raised hopes that a tech deal could be still be rescued.

Nvidia dominates the AI chip market, with Mizuho Securities estimating the company supply between 70% and 95% of the chips used for training by OpenAI’s GPT and others.

Ahead of the summit Trump said he would be asking Xi to “open up” China to allow their “brilliant people” to “work their magic, code for permission to allow US trade companies enter the Chinese market.

Earlier this year three people were charged in the US with trying to unlawfully divert cutting edge US AI tech to China, a sign of the Chinese hunger to compete on AI.

Before the summit, experts said Washington could loosen its export restrictions on AI tech but it was more like it could seek to increase restrictions to gain advantage over China and cement its AI lead over Beijing.

Britain’s competition watchdog has launched an investigation into Microsoft powerful position in the business software market.

The Competition and Markets Authority will examine whether Microsoft should be designated with “strategic market status” (SMS), given the wide use of products such as Windows, Word, Excel, and Teams, as well as its AI offering, Copilot.

The investigation will examine whether Microsoft has SMS in business software and consider whether it can use that position to limit customer choice. It will also examine if the bundling of the products together makes it harder for customers to switch to other software.

It will also examine if AI competitors are able to integrate with Microsoft’s business software.

Sarah Cardell, chief executive of the CMA, says:

Business software is a cornerstone of how the UK economy functions, from small businesses to major public services and infrastructure. Hundreds of thousands of customers in the UK rely on Microsoft’s systems, which is why it’s so important to ensure these services are delivering good outcomes.

Microsoft has said it is committed to working "quickly and constructively” with the CMA on this issue.

This chart shows how UK growth in January-March was the strongest for a calendar month in a year:

It also illustrates the earlier point that the ONS may be over-estimating growth early in the year….

Traders have been betting against the pound as speculation over Keir Starmer’s future has mounted this week, data from brokerage IG shows.

They report that short-selling activity against the pound surged sharply over the past week.

IG explains:

Short positioning in GBP/USD saw notional trading volume jump 45% week-on-week on IG’s platform, alongside a 19% rise in the number of clients taking bearish positions and a 16% increase in trade count.

The pound emerged as the single biggest focus for bearish positioning, with traders increasingly using sterling exposure to hedge or speculate on further UK volatility.

This morning, the pound is trading flat against the US dollar at $1.352, having hit a two-week low yesterday.

Chris Beauchamp, chief market analyst at IG, says traders are “increasingly reaching for the ‘sell’ button on UK assets, expressing concern about where the UK economy could be heading next.

Beauchamp adds:

“There’s also been a notable jump in short positions across major UK banks, which often act as a barometer for confidence in the domestic economy. While volumes in those names are nowhere near those of sterling, the speed of the increase shows nerves are beginning to spread more broadly across UK markets.

While political uncertainty has started to weigh more heavily on UK assets, investors still appear to view Starmer as the more market-friendly option compared with the prospect of another prolonged period of political instability or policy volatility reminiscent of the chaos seen between 2022 and 2024.”

Some economists have doubts about today’s UK GDP report.

The issue is that this data has a habit of showing strong growth early in the calendar year, and weaker growth later.

That has raised suspicious that the Office for National Statistics are botching their seasonal adjustments – changes to the data to smooth out regular factors that boost, or suppress, growth.

James Smith, developed markets economist at ING, says we should be sceptical about the claim that the UK grew by 0.6% in January-March.

Smith writes:

We just aren’t convinced by the UK’s first quarter growth performance. GDP rose by 0.6%, up from 0.2% in the fourth quarter of 2025.

It follows a now-familiar pattern; since 2022, UK growth figures have come in much stronger in the first three months of the year than the rest. Growth has averaged 0.6% in Q1 over that period, a sharp contrast to Q3 where the economy has typically flatlined.

Why? It’s hard to say exactly what’s happening. But it seems that something’s not quite right with the way the data is being seasonally-adjusted, a legacy we suspect of higher inflation and the timing of annual price hikes.

The ONS appears to be taking this issue seriously too.

This morning, the statistics body says it is assessing its approach to seasonal adjustments, and has made some changes – which mean it has lowered its forecast for growth in the first quarter of 2024 and 2025.

The ONS’s James Benford writes:

In today’s release, having seen another strong out turn in the first quarter, our seasonal adjustment process has reassessed the seasonal factors for past quarters and, as a result of this and other updates, now show headline GDP growth of 0.7% in 2024 Q1 (previously estimated at 0.8%) and 0.6% in 2025 Q1 (previously estimated at 0.7%).

One of the UK’s leading businesswomen has warned that political turmoil is damaging for companies.

With leadership battle speculation swirling, Aviva CEO Amanda Blanc told Reuters:

“There have been too many changes of government strategy, leadership, just in my six years of being CEO, and I think that is harmful to a major economy such as the UK and how we are perceived abroad.”

“We don’t operate in a vacuum, and we think it’s very important that we get some stability.”

Blanc also pointed to the turmoil in the bond markets four years ago, after Liz Truss’s mini-budget, saying:

“We’ve only got to look at the market reaction to the mini-budget… these are the sort of things that really matter.”

Chancellor Rachel Reeves also warned this morning that a leadership battle could plunge the UK ‘into chaos’, and threaten its economic recovery.

Asked by the BBC about the possibility that health secretary Wes Streeting triggers a Labour party leadership race, Reeves argues that the government will be able to invest more in public services and help households and businesses because of the pick-up in growth.

But, she argues, that’s only possible because of the economic stability the government has brought back.

Reeves adds:

We shouldn’t put that at risk by plunging the country into chaos at a time when there is conflict in the world, but also at a time when our plan to grow the economy is starting to bear fruit.

If UK borrowing costs remain elevated, the chancellor’s headroom to keep within the fiscal rules will be squeezed – especially if the economy slows later this year, as economists are warning this morning.

Lindsay James, investment strategist at Quilter, warns that ministers have “few easy options”:

Tax rises or spending restraint may become harder to avoid if market pressure persists, while any signs of wavering on fiscal discipline could risk further unease in the gilt market. Rachel Reeves is still viewed by many investors as an important anchor for confidence, but the rigidity of the fiscal rules means policy can too often be shaped by short-term moves in fiscal headroom rather than a long-term plan for sustainable growth.

“For investors, the concern is that a fragile domestic recovery is now meeting a much less forgiving global backdrop, at the same time as political risk is again being priced into UK assets.”

The Office for National Statistics has also spotted signs that the economy may have weakened last month.

James Benford, the ONS’s director-general for surveys and economic and social statistics, has written in a blogpost today that consumer demand appears to have dipped in April.

He explains:

We also published in our monthly GDP release today a review of the partial data we have on spending on April which, on balance, point to some weakening going into the second quarter. Indicators of consumer demand suggested some easing during the month.

That is consistent with anecdotal evidence from firms that reported to us a weakening in some areas of consumer spending in March, following the conflict in Iran, that was at least in part offset by stronger spending in other areas due to stockpiling in anticipation of higher prices.

UK government borrowing costs have fallen, slightly, at the start of trading.

The yield (or interest rate) on benchmark 10-year gilts has dropped by 3 basis point (0.03 of a percentage point) to 5.04%.

30-year bond yields are down around 1 basis point at 5.727%, and shorter-dated bond yields are a little lower too.

This matches moves in US bonds this morning.

Earlier this week, the UK 30-year yield hit its highest since 1998 as pressure mounted on Keir Starmer to lay out a timetable for his departure.

The political drama hasn’t eased since, with reports that health secretary Wes Streeting may challenge Starmer for the leadership as soon as today.

Another potential candidate, Angela Rayner, has been cleared by HMRC of deliberate wrongdoing or carelessness over her tax affairs:

Several analysts are warning that Britain’s pick-up in growth in January-March may be the best we see this year.

Ruth Gregory, deputy chief UK economist at Capital Economics, says she would be very surprised if growth doesn’t weaken from May, adding:

GDP rose by a bumper 0.6% q/q in Q1 (consensus and CE forecast 0.6%), but this will be the high point for the year given the effects of the war in Iran will sap growth from Q2. In our baseline scenario, the economy doesn’t grow at all in Q2 and Q3. Prolonged political instability is an extra downside risk to our forecasts.

Michael Brown, senior research strategist at brokerage Pepperstone, also suspects the 0.6% jump in GDP in Q1 will mark the peak in terms of UK growth this year:

Risks remain clearly tilted to the downside moving forwards, principally as a result of the ongoing Middle East conflict, and subsequent surge in energy prices, which will in turn impact the economy in the manner of a significant negative demand shock, over the next couple of quarters.

Added to which, renewed political uncertainty in Westminster is also likely to act as a significant headwind to the economy at large, not only delaying major investment decisions, but with said uncertainty having also resulted in considerably tighter financial conditions as a result of the recent sell-off in gilts across the curve.

Raj Badiani, economics director at S&P Global Market Intelligence, predicts the UK economy will shrink slightly later this year:

The UK economy outperformed in the first quarter of this year with growth reaching 0.6% quarter over quarter, despite being at odds with lacklustre survey indicators during this period. This continues the recent pattern of unexpectedly strong growth in the first quarter of the year, while stockpiling of some goods ahead of anticipated shortages arising from the Iran war lifted demand in March.

“Nevertheless, recession risks have risen, and we now expect the UK economy to contract mildly in the second and third quarters of this year. The main driver is a prolonged energy price shock pushing headline inflation above 4.0% in the coming months, and the resulting pressure on the Bank of England to raise interest rates to counter emerging ‘second-round’ effects.

Here’s the ONS director of economic statistics, Liz McKeown, on today’s UK GDP report:

Growth picked up in the first quarter of the year, led by broad-based increases across the services sector. Within that wholesale, computer programming and advertising performed particularly well.

“Production also grew slightly, while construction returned to growth, though only partly reversing weakness at the end of last year.”

Chancellor Rachel Reeves can be forgiven for tooting her own trumpet this morning, after the UK economy grew faster than forecast in March.

Following the news that GDP rose by 0.3% in March, and by 0.6% in the first quarter of the year, Reeves says:

Today’s strong growth figures show the government has the right economic plan.

The choices I have made as chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran.

Now is not the time to put our economic stability at risk.

That last sentence sounds like a reproachful glare towards her colleagues who are trying to push the PM, Keir Starmer, out of Downing Street (which could lead to a change of chancellor too…)

Output across the UK’s construction output increased by 1.5% in March, the ONS reports, thanks to new building work and repairs.

This morning’s GDP report says:

The increase in monthly output in March 2026 came from increases in both new work, and repair and maintenance, which grew by 2.0% and 0.8%, respectively. At the sector level, the main contributor to the monthly increase was private housing new work, which grew by 2.8%.

That follows a fall in new building work in the second half of last year.

UK economic growth picked up on a quarterly basis, the ONS reports.

UK GDP rose by 0.6% in the January-March quarter, up from 0.2% in October-December.

All three main sectors of the economy grew: services output grew by 0.8%; production output by 0.2%; and construction output by 0.4%.

Newsflash: The UK economy kept growing in March, despite the economic damage caused by the Iran war.

UK GDP rose by 0.3% in March 2026, the Office for National Statistics has reported, beating forecasts of a contraction of 0.2%.

That follows growth of 0.4% in February and no growth in January (revised down from growths of 0.5% and 0.1% previously estimated).

The ONS adds.

Services and construction output both grew, by 0.3% and 1.5%, respectively - these growths were partly offset by a 0.2% fall in production.

The Iran war, and the resulting jump in borrowing costs, is dampening the UK housing market.

My colleague Tom Knowles reports:

Fears of higher mortgage rates and rising inflation as a result of the Middle East conflict are leading to a subdued and downbeat housing market, according to estate agents.

Demand from potential homebuyers across England and Wales has shown a ‘noticeable softening’ recently, according to a monthly survey of estate agents by the Royal Institution of Chartered Surveyors (RICS).

Members have told the professional body that buyers and sellers are becoming more cautious, and many agents have cited clients who are worried about whether inflation and interest rates will rise in the coming months, leading to slower sales, fewer homes on the market, and more price-sensitive buyers.

Good morning. We’re about to learn how much economic damage the UK suffered in the early weeks of the Iran war.

The first estimate of UK gross domestic product (GDP) in March, and for the first quarter of the year, is due to be released at 7am.

Economics fear the Middle East conflict, which began at the end of February, will have hit activity in the UK. The consensus is that GDP may have fallen by about 0.2% in March, a reversal of the 0.5% growth recorded in February.

For Q1 as a whole, City experts predict growth of 0.6%, up from 0.1% in October-December 2025.

But the outlook for 2026 looks tough, as economies are hit by rising energy prices, with food inflation set to jump too.

Fergus Jimenez-England, associate economist at the economic forecasting body NIESR, fears the UK economy faces “a year of weak growth and high inflation.”

The UK economy is in a state of transition. It began the year with some momentum, as business sentiment recovered following the Autumn Budget, but conflict in the Middle East has since stifled that momentum.

As businesses adjust to this latest energy shock, leading indicators are sending mixed signals. Input price inflation has picked up sharply and job vacancies continue to fall, pointing to softer demand conditions ahead. At the same time, retail sales and PMIs have held up, although some of this strength may reflect firms and households bringing forward spending in anticipation of further price rises.”

The agenda

• 7am BST: UK GDP report for Q1 2026

• 7am BST: UK trade report for Q1 2026

• 9.30am BST: Survey of economic activity and social change in the UK

• 10.30am BST: Resolution Foundation event: ‘Resetting government economic priorities for the remainder of the parliament’

• 1.30pm US retail sales for April

• 1.30pm US initial jobless claims