UK economy began to feel fallout from Iran war in April, data shows

By Andy Bruce and Suban Abdulla

LONDON, ‌June 12 (Reuters) - Britain's ​economy ​contracted by 0.1% in April, its first monthly drop since August as the Iran war's cancellation of Formula 1 Grand Prix races and other Gulf sporting events ‌delivered a blow to the British entertainment industry.

Friday's data from the Office for ⁠National Statistics (ONS) showed the first clear signs of an impact from the U.S.-Israeli war on Iran in terms of British ‌economic growth.

Output in the dominant ‌services sector declined in April by 0.2%, dragged down by administration and support services, as well as the arts, recreation and entertainment sectors.

An ONS official said there were reports that cancellation ​of sporting events in the Middle East had hit related British firms.

The outbreak of war resulted in the cancellation of Formula 1 Grand Prix races in Bahrain and Saudi Arabia, ⁠which had been due to take place in April. Tennis and soccer events were also called off.

Thomas Pugh, chief economist at ​tax and consultancy firm RSM, said the outlook was set to worsen.

"Higher energy prices and borrowing costs along with a renewed bout of political uncertainty ​are likely to conspire to bring growth almost to ‌a standstill for the rest of the year," Pugh said, adding that the data added to a sense the Bank of England was likely to ⁠leave interest rates on hold next Thursday.

Investors showed little reaction to Friday's figures, with the pound steady and financial markets continuing to price in only a small chance of a rate hike this month, with one ⁠fully priced in for November.

Responding to the ONS data, finance minister Rachel Reeves said the war in Iran would ​have an impact on the economy but that her plan was the right one.

Manufacturing output rose by 0.4% in April - helped by a rise in pharmaceuticals production which often sees large swings - helping to offset a ‌bad month for the services sector. Construction output also grew modestly.

Overall economic output in the three months to April was 0.7% higher than the ‌previous three months, as economists had expected.

Separate trade data showed the value of fuel imports surged in April ⁠to £7.1 billion ($9.52 billion), the highest reading ‌for three years, reflecting both the ​surge in oil prices following the outbreak of war and Britain's high dependence on imported energy.

($1 = 0.7459 pounds)

(Reporting by Andy Bruce and Suban Abdulla; Editing by ‌William James)

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