Are we in the calm before the economic storm?
There is a palpable sense of being in the calm before the storm. Thanks to the backward-looking nature of most economic data releases, we’re being fed glimpses of the gathering gloom.
The latest GDP growth data from the ONS covered Q1 and came in at a respectable 0.6 per cent. However, it has been widely noted that a strong start to the year is a familiar pattern, accentuated at the beginning of 2026 as the messy 2025 Budget process faded into the rearview mirror.
As Andrew Wishart, senior UK economist at Berenberg, said last week: “The UK economy’s strong start to the year was probably part truth, part statistical illusion.” But even if it did reflect healthy fundamentals (rather than well-known issues with the seasonality adjustment process) nobody expects the momentum to continue into Q2.
Even without the Iran war it would almost certainly have run out of steam, but the energy shock and inflationary wave unleashed by the conflict mean that many economists now expect UK GDP growth to be so poor as to be hardly worth mentioning. Meanwhile the latest jobs data covered the three months to March, with the unemployment rate inching up to 5 per cent. The single month rate for March alone was 5.5 per cent, which doesn’t bode well. Indeed, the Labour Force Survey estimates for April suggest a loss of 100,000 jobs that month.
Data paints a picture of deterioration
Employers were already battling higher costs before the war, and they now face a wave of inflation that is far from its expected peak. The tragic element of our national jobs story is how badly the problems in the labour market are hitting young people. Youth unemployment has climbed to 14.6 per cent, its highest level in 11 years. Young men not in higher education account for the bulk of this.
It seems wherever you look, economic data paints a picture of deterioration. Retail sales are down, the housing market has taken a hit, the construction sector is on life support and hiring and investment intentions are wobbling. Bright spots exist in certain sectors, not least tech investment and parts of our surprisingly resilient services sector, but backward-looking data combined with forward-looking sentiment surveys paint an unambiguous picture of a very tough year ahead.
To top it all off, we now face the prospect of major political disruption and yet another autumn of febrile Budget speculation.