Britain was on recession alert last night after the Iran war, higher taxes and Labour turmoil pushed the economy into reverse. 

In a report that will make grim reading in Downing Street, the Office for National Statistics said the economy contracted by 0.1 per cent in April following a surprisingly upbeat start to the year. 

Rachel Reeves immediately sought to blame the conflict in the Middle East, saying 'this is not a war we wanted or joined, but one that will have an impact at home'. 

But critics warned that while the inflation shock stemming from the war was taking its toll, the economy was also being strangled by soaring taxes and other costs as well as red tape under Labour. 

Danni Hewson, head of financial analysis at AJ Bell, said the slump in output in April 'hints at what is to come'. She pointed to 'a summer of sluggishness which could edge into recession as global conflict collides with domestic political uncertainty'. 

Luke Bartholomew, deputy chief economist at fund manager Aberdeen, said 'recession risks are elevated'. 

The figures are the latest blow to the Chancellor as she faces a fierce backlash after her refusal to sign off increased military spending led to John Healey quitting as defence secretary on Thursday.

Having battered the economy with £75billion of tax hikes in less than two years at the Treasury, Ms Reeves has been accused of funnelling the extra cash into benefits rather than the military. 

Concern is also growing over lengthening dole queues with youth unemployment at an 11-year high of 16.2 per cent as rising taxes and wages and new employment laws slam the brakes on hiring.

Shadow chancellor Mel Stride said: 'Putting Benefits Street first leaves the economy weaker.'

The ONS report showed the decline in April was driven by a 0.2 per cent fall in output in the dominant services sector, which offset a 0.1 per cent rise in construction and 0.4 per cent growth in manufacturing.

The figures dashed hopes that Britain was on the road to a sustained recovery following growth of 0.4 per cent in February and 0.3 per cent in March. Tory business spokesman Andrew Griffith said: 'Rachel Reeves has put the British economy into reverse.

'These figures are for April which is when so many Labour tax hikes and extra red tape landed. That's no coincidence and instead of funding defence, they are pouring money into welfare.'

Business leaders said the latest setback shows why the Government must reduce the burden of tax and red tape on employers. But with Sir Keir Starmer's future as Prime Minister in doubt, and the Government in paralysis, confidence is ebbing away.

Anna Leach, chief economist at the Institute of Directors, said: 'The removal of barriers to growth, from tax and regulation and the delivery of a predictable policy environment, must remain the focus of Government policy action.'