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 conflict in the Middle East, as proof the government had “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 in March – significantly better than economists’ forecasts that GDP would shrink by 0.2%.

Over the first three months of 2026, GDP rose 0.6%, up sharply from growth of 0.1% in the final three months of last year and making the UK the fastest growing economy in the G7. The economy also grew by 1% compared with the same quarter in 2025.

Reeves said the figures demonstrated the government was on the right track in its attempts to significantly grow the economy. “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,” she told the BBC.

The chancellor will set out more plans next week to support families and businesses “with the challenges that have come from this conflict in the Middle East”. She added that any financial support for households would be targeted at those most in need.

Speculation has been rife that if Starmer is forced out as prime minister, Reeves will also lose her job because the next leader will want a new chancellor to signal a change in the status quo.

However, with government borrowing costs rising amid the political turmoil, allies of Reeves have said a new prime minister may want to keep her in place to calm the bond markets and reassure them that the government’s fiscal rules will not be loosened.

The ONS said growth in the first quarter was “led by broad-based increases” across the UK’s dominant services sector, which grew by 0.8%. It added that the computer programming and advertising industries performed particularly well, while construction returned to growth, rising by 0.4%, although this was owing to repair and maintenance work rather than new work.

However, on a monthly basis, the biggest downward effect on GDP growth was a 6.4% fall in travel agency and tour operator activities, suggesting the Middle East conflict was forcing consumers to reconsider their holiday plans.

The March figure is one of the first official signs that the Iran war, which broke out on the final day of February, is not affecting activity for businesses and consumers as badly as expected, despite soaring oil and gas prices owing to the closure of the strait of Hormuz.

Ruth Gregory, the deputy chief UK economist at Capital Economics, said: “The economy performed remarkably well in the early stages of the energy price shock … but this will be the high point for the year given the effects of the war in Iran will sap growth from the second quarter.”

The GDP reading ties in with some business surveys that suggest the economy has managed to maintain momentum despite the Middle East conflict.

The closely watched purchasing managers index (PMI) for the UK showed business activity rising in April because of upturns in manufacturing production and output from the services sector. Retail sales also rose in March, even when excluding the increased cost of fuel, according to the ONS.

Economists were pessimistic about the growth continuing into the second quarter and said some of the rise may be owing to businesses and consumers stocking up on goods, fuel and raw materials before possible supply shortages and higher borrowing rates.

Yael Selfin, the chief economist at KPMG, said: “The adverse effect of the war in Iran on the economy is likely to show in the second quarter. We expect growth to slow, as higher costs and softer demand continue to weigh on activity.”

In recent years, the UK has also consistently shown much stronger than expected GDP figures in the first part of the year, only for growth to fizzle out later. Some economists have suggested this may mean the ONS is not accurately adjusting its data for seasonal variations. The ONS has said it would “keep estimates of seasonality under close review”.

The Bank of England is expected to raise interest rates in response to rising inflation this year. However, Sarah Breeden, a deputy governor at the Bank, told the Financial Times on Thursday: ”We can’t wait forever, but we don’t need to do it in June or July.”