UK economy grows 0.3% in March — Reeves warns against instability

The UK economy unexpectedly expanded by 0.3% in March 2026 according to the Office for National Statistics, contributing to a 0.6% rise in GDP for the first quarter and prompting Chancellor Rachel Reeves to warn that political instability could jeopardize economic progress.

ONS breakdowns indicate the March increase was driven by a rebound in services and supportive readings across several industrial components, outperforming a Reuters‑polled consensus that had forecast a monthly contraction. The data represent a stronger-than-expected start to the year, although monthly GDP is volatile and subject to revisions.

Market reaction was immediate: gilt yields and sterling showed heightened volatility as investors reassessed near‑term growth and risk pricing. Historically, upside surprises in GDP can lift yields as expectations for tighter policy or improved fiscal trajectories change; traders noted the ONS surprise fed into repricing in short‑dated UK debt.

The result arrives against the backdrop of the Iran conflict, which has pushed up energy costs and prompted downward revisions to UK growth forecasts by institutions such as the IMF. While the March reading suggests resilience among businesses and consumers in the initial weeks of the conflict, forecasters caution that energy shocks and global uncertainty could weigh on activity later in the year. Political tensions within the ruling party also add a layer of macro‑policy uncertainty.

Analysts say the single monthly beat does not eliminate downside risks: attention will focus on inflation, labour market data and Bank of England decisions to assess whether the recovery is durable. Reeves’ public call to avoid domestic political disruption underscores a policy priority to preserve market confidence while navigating external headwinds. Investors and policymakers will monitor forthcoming ONS revisions and macro releases for confirmation of the trend.