Donald Trump's Iran war threatens to torpedo London's economic uplift, warn business chiefs

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Nicholas Cecil, Political Editor @nicholascecil|Michael Howie2 minutes ago COMMENTSBusiness confidence in London rose in the first three months of the year but Donald Trump’s war is putting “at risk” the capital’s economic momentum, says bosses.

Around half of firms, 48%, had been anticipating a growth in turnover over the coming 12 months, up from 42% in the final quarter of 2025, according to the London Chamber of Commerce and Industry’s latest economic survey.

But Karim Fatehi, chief executive of the LCCI, said:“While it is encouraging to see clear signs of improving business confidence in London at the start of the year, this progress is now at risk.

“The escalation of conflict in Iran has introduced a renewed period of geopolitical uncertainty, driving up costs and undoubtedly weighing on expectations for growth, investment and hiring.”

Earlier, official figures revealed that the UK economy grew by a “bumper” 0.5% in February.

The latest GDP figure from the Office for National Statistics showed an unexpected boost to growth before Trump launched his Iran war.

The City had expected a far more modest 0.1% increase in GDP.

Amid the economic turmoil from the Iran war, the Bank of England was "not going to rush to judgements" on interest rate rises, Governor Andrew Bailey told BBC News.

Mr Bailey, in Washington for the International Monetary Fund's spring meetings, said higher oil and gas prices would certainly feed through to prices, but that other factors made a decision on rates "very, very difficult".

He added: "There's really difficult judgements to be made.

"We're not going to rush to judgements on those things, because there are a lot of uncertainties around this, not just how it's going to play out, but also how it's going to pass through into the UK economy."

On the latest growth figures, Ruth Gregory, Deputy Chief UK Economist at Capital Economics, said: “GDP rose by a bumper 0.5% in February but March’s activity PMIs suggest the war in Iran has already all-but extinguished growth.

“And in our baseline scenario we think GDP growth will slow from 1.4% in 2025, perhaps to just 0.7% this year.”

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She added: “The 0.5% rise in real GDP was far stronger than both the consensus forecast of a 0.1% rise and our forecast of a 0.2% gain.”

She stressed there was “strength across the board,” in economic growth, including in the giant services sector, construction and industrial production.

Construction has shown a surprise risePA ArchiveResponding to the upbeat news, Chief Secretary to the Treasury James Murray said: “Growth only happens when the economy is on solid ground.

“That's why in a changing world our plan to restore stability, boost investment and deliver reform is the right one to build a more stronger more resilient Britain.”

He added: “At the IMF meetings in Washington the Chancellor has set out how we will go further and faster to boost Britain’s competitiveness and build a stronger, more resilient economy, keeping costs down for families and businesses and taking back control of our energy costs as today we cut bills by up to 25% for 10,000 British businesses.”

However, the Government is braced for the economy to be hit by Donald Trump’s Iran war which Chancellor Rachel Reeves has branded a “folly”.

She has accused the US president of launching the conflict with no exit plan and with no clear war aims.

Mortgage rates have risenPA ArchiveMillions of people in the UK are now facing higher energy bills, mortgage rates have risen, and petrol and diesel prices are up.

Just days ago, the International Monetary Fund warned that the UK would be the most impacted by the war among G7 nations, which are the US, Britain, Germany, France, Italy, Japan and Canada.

The IMF predicted miserly growth in the UK of just 0.8% this year, down sharply from the 1.3% predicted in January.

In Washington, Ms Reeves has expanded plans to cut electricity bills for thousands of UK manufacturing firms as she continues talks in focused on the economic fallout from the Iran conflict.

The Chancellor, who is in Washington for the International Monetary Fund (IMF) spring meetings, said the plan will help UK businesses compete and create jobs despite the uncertain economic backdrop.

Ministers have been planning for the conflict to threaten to lead to shortages in the food industry in the UK, due to a possible lack of CO2 which is crucial to preserve products.

“At this moment, this is not a concern for our economy,” Business Secretary Peter Kyle told Sky News, stressing that the contingency planning had been under way for weeks.

“I can tell you, because I’m in these meetings, the Prime Minister has been there since the very start, and he is going through personally and driving deep dives into lots of areas of resilience throughout our economy,” he added.

Business Secretary Peter KylePA WireMr Kyle pointed to his own decision near the start of the conflict to reverse the mothballing of the Ensus bio-ethanol plant in Teesside to secure supplies of carbon dioxide.

He added: “People should be reassured that we are doing this kind of action behind the scenes to keep resilience in our economy, so that when the full extent of what may or may not emerge, because this situation is still unfolding in the Middle East, you have a Government that is acting with creativity and boldness.”

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