The UK economy has contracted for the first time in two years, shrinking by 0.3% in the final quarter of 2024 as the escalating conflict with Iran drives up energy costs and disrupts trade. The Treasury warned of “further turbulence” ahead, with families facing soaring heating bills and empty shelves in some areas.
Gross domestic product fell below forecasts, driven by a sharp drop in industrial output and a slump in consumer spending. Manufacturers, especially in the North and Midlands, reported supply chain chaos as shipping lanes near the Strait of Hormuz remain partially closed. Oil prices have surged past $120 a barrel, pushing petrol past £1.70 a litre and deepening the cost of living crisis.
Rachel Reeves, the Chancellor, acknowledged the pain but insisted the government was taking action. “We are in a storm, but we will not stand by,” she said in a statement. “We are boosting energy bill support for low-income households and negotiating with allies to stabilise supplies.”
Union leaders were quick to condemn the government’s response. Sharon Graham, general secretary of Unite, said: “Workers are paying the price for this reckless war. We need a windfall tax on oil giants and a proper support package, not more warm words.”
In a Northern mining town, a food bank organiser told me: “People are coming in with tears in their eyes. They cannot afford to heat their homes and feed their kids. This is a national emergency.”
The Bank of England is expected to hold interest rates at 5.25% next week, fearful of fuelling inflation further. But business groups warn that without a ceasefire, the outlook remains bleak. The Confederation of British Industry said investment had “frozen solid” as firms brace for a prolonged conflict.
On the streets, anxiety is palpable. In Manchester, a taxi driver named John said: “I’m working 14-hour days just to break even. My wife’s scared we’ll lose the house. The government talks about resilience, but we’re at breaking point.”
The crisis threatens to derail Labour’s promises on growth and living standards. With inflation still above 3%, real wages are falling again. The Office for Budget Responsibility will update its forecasts next month, but insiders already predict a deeper recession.
As night falls on another bleak day, the question on everyone’s lips: how much more can families take?
