The UK's economic growth slowed to 0.4% in the second quarter of this year, down from 0.6% in the previous quarter, according to the Office for National Statistics (ONS). This slowdown is attributed to disruptions stemming from the ongoing conflict in Iran, but analysts noted that the UK economy has shown more resilience than initially expected.
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Yael Selfin, chief economist at KPMG, highlighted that consumers have managed to cope with multiple shocks this year, stating, “Consumers have faced a series of shocks since the start of the year but have weathered them remarkably well.” However, she cautioned that growth momentum is likely to decrease in the second half of the year, suggesting that the economy closed out the first half on solid ground but may not sustain that strength.
The new Chancellor, John Healey, is set to present his first budget on 28 October. The ONS reported that services output increased by 0.5% in the second quarter, while construction grew by 0.3%. Industrial production remained unchanged.
Within the services sector, information and communication industries saw significant growth of 2.7%, driven mainly by increased computer programming activities. Notably, GDP growth for June alone exceeded expectations, registering at 0.3%, while analysts had predicted no growth for that month. Sanjay Raja, chief UK economist at Deutsche Bank, indicated that factors such as warm weather and World Cup-related spending likely boosted consumer demand.
Despite these positive indicators, economists anticipate that rising energy prices will continue to hinder growth throughout 2026. Since the spike in oil and gas prices following increased tensions in Iran in February, consumers faced higher utility bills after the energy price cap rose by 13% in July.
Chancellor Healey may face pressure to provide further support for households and businesses this winter, especially with high energy costs persisting. Andy Burnham recently announced a VAT cut for electricity bills but expressed that more measures are needed, acknowledging that the current efforts may not suffice.
The British Chambers of Commerce commented on the GDP data, emphasizing the ongoing challenges posed by high business costs and global economic pressures. Stuart Morrison, its research manager, described the resilience shown in the second quarter but noted that persistent cost pressures threaten long-term business growth.
Upcoming inflation figures for July are anticipated to exceed June’s rate of 2.6%, which may lead the Bank of England to consider raising interest rates. Healey acknowledged public concerns regarding the conflict's impact on living costs and reaffirmed the government’s commitment to prioritizing British interests and providing relief to those affected.