Chancellor Rachel Reeves has warned that “now is not the time” to risk instability amid a possible leadership challenge against prime minister Sir Keir Starmer.
Her comments came after new figures showed that the economy unexpectedly grew in March.
However, economists warned the pace of growth is set to stall throughout the year as the impact of the Iran war begins to show.
Gross domestic product (GDP) increased by 0.3 per cent in March, the Office for National Statistics (ONS) said, showing a surprise uplift for the first full month after the start of the US-Israeli conflict with Iran.
This helped the economy to grow by a higher-than-expected 0.6 per cent over the first quarter (January-March).
This marked the strongest growth since the first quarter of 2025 and came in ahead of the 0.5 per cent rate that analysts had been expecting.
“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,” Ms Reeves said.
“Now is not the time to put our economic stability at risk. To do so would leave families and business worse off.
“Instead, this government is getting on with the job of building an economy that is stronger, more resilient and prepared for the future.”
The comments come at a fraught time for the government, as Sir Keir faces uncertainty about his future at No 10 following a bruising set of election results and a potential leadership challenge.
The ONS’s data delivered a boost for Ms Reeves as it showed the economy had been more resilient than expected over the first three months of the year.
The services industry, particularly sub-sectors such as computer programming, advertising, publishing and wholesale, was the biggest driver of growth in the first quarter, with output growing by 0.8 per cent.
Manufacturing output also increased by 0.8 per cent, while construction output rose 0.4 per cent, according to the ONS.
However, experts cautioned that growth at the start of 2026 is likely to be short-lived as pressure on businesses and consumers builds due to the ongoing war in Iran and the looming threat of political instability.
Thomas Pugh, chief economist at accountancy firm RSM, said the latest data “probably means we’ve already had almost all the growth we’re likely to see in the UK economy this year”.
He added: “Surging energy prices, higher borrowing costs and a renewed bout of political uncertainty will conspire to bring growth almost to a standstill for the rest of the year.
“The ballooning political drama will add to the uncertainty weighing on consumer and business confidence, especially if a leadership challenge emerges and potential new tax rises begin to hit the headlines.”
The ONS also pointed to signs of so-called “front loading” in March, suggesting activity was being brought forward ahead of anticipated shortages in supply or price increases.
This included retailers reporting that motorists were stocking up on fuel as prices rose sharply.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the first quarter was “probably the high point for the economy this year”.
He pointed to a “short-term boost from firms stockpiling in anticipation of shortages and price rises” and said output was “likely to halve” in the second quarter of 2026.
Ben Jones, lead economist for the Confederation of British Industry, said: “The rebound in GDP growth in the first quarter looks unusually strong, largely reflecting February’s outsized gain.
“This pace of growth is unlikely to be sustained, particularly as the effects of the Iran conflict begin to be felt.
“With higher fuel and energy costs feeding through and disruption to global supply chains set to intensify the longer the Strait of Hormuz remains closed, pressures on businesses will mount, creating headwinds that are likely to weigh on growth through the remainder of 2026.”
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