UK Political Uncertainty Overshadows Strong Start to the Year

The UK economy saw a strong 0.6% expansion in Q1, but growth is expected to stall as the Iran conflict and domestic political leadership uncertainty weigh on sentiment.

Key Takeaways

• 1.UK Q1 GDP grew by a solid 0.6% Q/Q, with a surprising 0.3% M/M expansion in March, showing initial resilience to the Iran conflict.
• 2.Economic growth is expected to 'fizzle out' later in 2026 as the Iran conflict triggers a real income squeeze and tighter financial conditions.
• 3.Political instability involving PM Starmer's potential leadership transition is creating a risk premium on UK assets.

Table of Contents

• UK growth set to fizzle out after a strong start to the year
• Yet another fast start to the year for the UK economy
• UK business sentiment was relatively resilient in April
• Political uncertainty adds to the downside risks
• The UK leadership outlook is highly uncertain
• UK borrowing costs have diverged from G7 peers
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