Rachel Reeves warns 'now is not the time to put UK economic stability at risk' after UK economy GROWS

Chancellor Rachel Reeves has warned of the risk to "economic stability" amid an expected challenge to Keir Starmer's premiership.

Official figures showed the UK economy grew by 0.3% in March, and 0.6% in the first three months of this year. The growth marked a slowdown from a revised 0.4% in February, and suggests the impact from the Middle East war is beginning to bite.

The figures were published by the Office for National Statistics against the backdrop of political turmoil, with health secretary Wes Streeting expected to resign ahead of challenging the PM for his premiership.

Former Deputy Prime Minister Angela Rayner, seen as another potential challenger to Mr Starmer, says she has been cleared by HMRC of wrongdoing over her tax affairs.

Ms Reeves said: “Today’s figures show the Government has the right economic plan. 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.

“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.”

Her comments - while not mentioning the leadership battle - come as UK government borrowing costs have risen due in part to the uncertainty over the PM's leadership, following last week's disastrous local election results. Gilt yields - which have a big impact on those borrowing costs, have stabilised after a jump at the start of the week but remain high.

Gross domestic product had been thought to have grown by 0.5% in February. That marked a sharp increase following no growth in January and 0.1% in December, the Office for National Statistics said.

However, there are fears that the recovery - welcome news for Ms Reeves and Labour - will be undone by the Iran war, which erupted right at the end of February, with the political unrest at home posing another headache.

Suren Thiru, chief economist at the ICAEW (Institute of Chartered Accountants in England and Wales), said: “A prolonged period of domestic political instability would cast another dark cloud over the UK’s economic outlook by further denting confidence and increasing financial market turbulence, likely resulting in notably weaker spending and investment."

ONS director of economic Statistics Liz McKeown said: “Growth picked up in the first quarter of the year, led by broad-based increases across the services sector. Within that wholesale, computer programming and advertising performed particularly well. Production also grew slightly, while construction returned to growth, though only partly reversing weakness at the end of last year."

Yael Selfin, chief economist at KPMG, said the strong start to 2026 was "expected to fade as the impact of the Iran conflict filters through."

TUC General Secretary Paul Nowak said: “It’s positive that our economy was stronger at the start of the year. But after years of falling living standards, working people need both sustained growth and action to ensure that gains are fairly shared.

“Families and businesses are battling against a life-shattering cost of living crisis, and fear their situation will only get worse due to Donald Trump’s illegal war in Iran.

“So as rising petrol, gas and mortgage costs heap more pressure on family budgets, the government must be laser focused on jobs and living standards. Working people, their families and communities must be at the centre of every decision. That means action must be taken now to protect families in the face of rising bills, and to support more young people into good jobs and training. And banks’ bumper profits must be taxed fairly, to raise the funds needed to shield households and firms from the damaging impacts of the war.”

Simon Pittaway, senior economist at think tank the Resolution Foundation, said: “For the third year in a row, the UK economy made a fast start to the year. Respectable growth of 0.6% in early 2026 makes the UK currently the fastest growing economy in the G7. Encouragingly, there was growth across sectors – from wholesale and retail trade, to professional services and transport.

“But, once again, this fast start will peter out. The war in Iran is set to slow growth, lower typical household incomes by £550 this year and increase government borrowing by £16 billion by the end of the decade. All of which presents a challenging backdrop to any Government reset.”